AI Software 'Collapse' Foretold: Consultant Warns No Business Sector Will Emerge Unscathed

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AI Software 'Collapse' Foretold: Consultant Warns No Business Sector Will Emerge Unscathed

Nearly a year ago, Michelle Miller co-authored a prescient study that sounded the alarm on the software industry's impending squeeze by the rise of generative artificial intelligence. Today, that warning has materialized as software stocks have plunged, mirroring the very reasons Miller and her colleagues at AlixPartners outlined back in April. In a recent discussion, Miller, co-lead of the Enterprise Software Practice at AlixPartners, provided an in-depth perspective on the current landscape and the future trajectory of an industry increasingly shaped by AI advancements.

The AI Effect on Software Stocks: A Perfect Storm

Miller elaborated on the factors contributing to the recent slump in software and SaaS stocks. She noted that while these forces have been building for some time, they are now accelerating dramatically. Key among these are heightened anxieties surrounding AI disruption, the inadequacy of traditional pricing models, pervasive macroeconomic uncertainty, and evolving valuation frameworks that increasingly incorporate AI-driven metrics. Historically, enterprise software company valuations were primarily anchored to investor expectations of growth. However, this growth narrative is now under significant challenge from AI-driven forces, compelling a re-evaluation and a subsequent decrease in market multiples.

Demystifying the Threat: AI and Evolving Business Models

Referencing trending developments, such as Anthropic's "Cowork" tool, Miller identified them as prime examples of AI lowering entry barriers, gaining rapid traction, and disrupting established workflows. The core message for non-technical audiences is clear: AI will not eliminate the need for software companies, but these companies must now rigorously prove their ability to deliver on their growth agendas. This necessitates a fundamental shift in how software businesses operate. AI is compelling change across the entire value chain, from software development, AI governance, and data security, to go-to-market strategies, pricing models, valuation methodologies, and overall business structure. Miller firmly believes that companies that successfully navigate these transitions will emerge as leaders in the next era, while those unable to adapt risk being sidelined as the industry's foundational principles are redrawn.

Beyond the Hype: Serious Implications of Advanced AI Tools

The implications of AI extend far beyond novel online interactions. Tools like Moltbot and its successor, "OpenClaw," represent the cutting edge, validating the rapid acceleration of AI technology. Miller views these as scaled experiments that have captured significant attention, particularly within AI communities. They offer a glimpse into the nascent stages of agent-to-agent interaction, foreshadowing the immense productivity gains individual users can anticipate with modern agentic systems. This development raises critical questions regarding AI governance and data security for enterprises grappling with the complexities of open-source AI and "shadow AI." The so-called "trust infrastructure" has often been an afterthought rather than a foundational capability, presenting a significant hurdle to broader AI adoption.

Corporate Adaptation: How Companies Are Embracing AI

Companies are actively piloting AI tools across their organizations. In product and engineering departments, teams are leveraging AI for accelerated coding, developing conversational interfaces, and building robust trust infrastructures. Go-to-market functions are implementing AI-powered sales tools and experimenting with new pricing models. Furthermore, AI is being integrated to enhance general administrative functions, including finance, HR, and IT process automation. Current data indicates that over 30% of tech company workflows already incorporate AI tools, a figure expected to grow substantially in the next five years. However, a significant challenge remains: a majority of Generative AI proofs-of-concept are not transitioning into full production, with an estimated 75% of all AI deployments projected to fail. Miller emphasizes that leading companies in 2026 will shift from running incremental pilots to fundamentally reinventing how work is done.

Industry Vulnerabilities and Future Resilience

Miller confirms that all sectors of the software and SaaS industry are exposed to AI disruption, stating, "We expect that no aspect of the enterprise software business escapes unscathed." The mid-market segment, in particular, faces an imminent existential threat, signaling a period of significant consolidation. Miller predicts that by 2026, AI disruption will drive major consolidation within the mid-market enterprise software industry, with M&A deal volume potentially increasing by 30-40% year-over-year. This consolidation is driven by the squeeze on the middle market from slower growth, intense investment in AI startups, and strategic bets placed by tech giants.

Regarding which software services might remain essential and relatively immune, Miller suggests that general-purpose productivity and workflow automation software in the mid-market will be hit hardest. Conversely, incumbents with strong proprietary data moats, entrenched platforms, and vertical specialization in regulated industries (such as HIPAA-compliant patient data platforms) are likely to fare better. Ultimately, vendors that innovate by evolving their offerings to help customers transform static data into actionable context will be best positioned for success. The key takeaway is that adaptation and reinvention are no longer optional but essential for survival and growth in the AI-driven era.

Ekhbary News Agency