Key Takeaways
- Citi downgraded six software stocks — Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva — from Buy to Neutral
- Citi slashed price targets across all six, with some cuts of over 40%
- Piper Sandler flagged Anthropic’s new Claude Managed Agents as a direct threat to software incumbents
- Both firms favor hyperscalers like Microsoft and Oracle over traditional software companies
- Jim Cramer says the “buy hardware, sell software” trade is back and may last
A wave of pessimism swept through the software sector Friday as Citi Research demoted six application software companies from Buy to Neutral ratings. The downgrade targeted Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems, sending shares of all six companies lower in Friday’s session.
Tyler Radke, analyst at Citi, explained the downgrades stem from an absence of compelling near-term drivers and mounting evidence that artificial intelligence threatens conventional software revenue models. “We believe most of these are good companies and may be well positioned long-term but don’t have exciting 12-month catalysts,” Radke stated in his research note.
The firm accompanied its rating cuts with significant price target reductions. Docusign’s target plummeted from $99 to $50. Veeva experienced a decline from $291 to $176. The most dramatic revision hit Similarweb, which saw its target collapse from $8.50 to $3.
Radke highlighted that private AI enterprises are projected to generate more than $100 billion in incremental revenue over the next several years. This contrasts sharply with the $50 billion expected from conventional application software providers. Additional headwinds include escalating software optimization expenses and accelerating vendor consolidation.
Claude Managed Agents Intensify Competitive Concerns
Piper Sandler analyst Billy Fitzsimmons identified another factor amplifying pressure on software equities. Anthropic recently unveiled Claude Managed Agents, a preconfigured, adaptable agent framework engineered for persistent and asynchronous operations.
Fitzsimmons noted this development fuels worries that Anthropic’s agent technology will directly challenge solutions developed by incumbent software vendors. He anticipates sustained negative sentiment toward the software industry extending through the remainder of the year.
Piper Sandler reduced ratings on multiple sector names while expressing preference for enterprises that directly monetize AI computational resources. The firm highlighted Microsoft and Oracle as favored holdings, emphasizing their Azure and Oracle Cloud Infrastructure platforms respectively.
Microsoft currently commands a forward price-to-earnings multiple of 20x based on 2027 projections and produces $77.4 billion in levered free cash flow annually. Notwithstanding a 27% retreat over the preceding six months, Piper Sandler views the shares as attractively valued.
Infrastructure Providers Rally While Software Names Retreat
CNBC’s Jim Cramer drew attention to the expanding performance gap between hardware and software equities during Thursday’s broadcast. He observed the “buy hardware, sell software” rotation that characterized early 2026 trading has reemerged with force.
Salesforce declined nearly 3% while Adobe surrendered approximately 4% on Thursday. The IGV software ETF, a primary sector benchmark, tumbled more than 4%. CrowdStrike plunged 7.5%, despite its cybersecurity focus, primarily due to its inclusion in the fund.
Conversely, hardware-oriented names posted solid gains. Marvell Technology and Intel each advanced close to 5%. Corning, a supplier of data center materials, climbed 2.85%.
Cramer characterized companies enabling AI infrastructure as outperformers while enterprise software faces treatment as a contracting sector. He suggested this dynamic appears unlikely to shift direction imminently.
Piper Sandler also singled out Global-e Online as a favorable pick. The company derives revenue from ecommerce transaction volumes rather than software license counts, and projects 29% revenue expansion for the current year.
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