The same technology that once powered a wave of optimism across Wall Street is now beginning to turn the pressure back on the very companies that built it. Artificial intelligence (AI), once seen purely as a growth engine for software, is now forcing investors to rethink what “safe growth” really looks like.
That shift came into sharper focus after Citigroup moved to reset six major software stocks, warning that AI disruption could accelerate faster than expected. As a result, this will reshape business models across the sector.
The firm did not question the strength or quality of these companies, but it did flag a clear concern. The next 12 months may not offer the kind of upside investors are used to.
“We believe most of these are good companies and may be well-positioned long-term, but don’t have exciting 12-month catalysts,” said Citi analysts, led by Tyler Radke, as reported by Seeking Alpha. “This more selective approach would allow us to be more agile with our ratings should we see signs of AI acceleration play out.”
And of course, markets respond. Shares across the group fell as traders quickly repriced expectations, reflecting a growing unease that AI is no longer just lifting the software industry.
Citi downgrades 6 software stocks as AI concerns grow
Citi analysts, led by Tyler Radke, downgraded six well-known application software companies from Buy to Neutral. The list includes Similarweb (SMWB), DocuSign (DOCU), Autodesk (ADSK), Nice (NICE), CCC Intelligent Solutions Holdings (CCC), and Veeva Systems (VEEV).
Citi’s message is that these are strong companies, but the next 12 months may not offer compelling catalysts.
Related: UBS quietly resets outlook on AI software giant
Behind that view is a deeper concern. AI is evolving quickly, and privately held AI firms are expected to generate more than $100 billion in new revenue in the coming years. An example is Alibaba (BABA), aiming at $100 billion annually in five years, as reported by Bloomberg. That surpasses the roughly $50 billion expected from traditional application software growth. In other words, tech is shifting.
“Put simply, we see risk that concerns around software application architecture, business model durability, and terminal value intensify in the months ahead,” Radke noted.
Citi slashed price targets as analysts turn cautious
Alongside the downgrades, Citi significantly reduced its price targets across the board. Similarweb saw one of the steepest cuts, with its target lowered to $3 from $8.50. DocuSign’s target was nearly halved to $50 from $99, while Autodesk dropped to $246 from $331.
Other cuts included NICE to $119 from $184, CCC Intelligent Solutions to $6 from $10, and Veeva Systems to $176 from $291.
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That kind of across-the-board revision sends a strong signal. It’s about a broader reassessment of the sector’s future, not just about one company struggling
Citi highlighted growing concerns around software architecture, business model durability, and long-term valuation, areas where AI is increasingly seen as a potential disruptor rather than just a growth driver.
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Software stocks continue to fall
We both know the market doesn’t wait. And in the final session of the week ending April 10, its reaction was visible. All six stocks extended their declines as investor unease continued to build.
- Similarweb Ltd. (SMWB): Dropped more than 6%, extending losses to 14.02% for the week
- DocuSign (DOCU): Fell about 5.8%, bringing its weekly decline to 11.75%
- Autodesk (ADSK): Slipped nearly 3%, with a 7.99% weekly loss
- NICE (NICE): Led declines, falling over 7% and pushing its weekly drop to 14%
- CCC Intelligent Solutions (CCC): Dropped 6.38%, with a steep 16.97% weekly decline
- Veeva Systems (VEEV): Fell 3.6%, marking a 12.97% loss for the week
The broader software sector has been under pressure, with investors increasingly questioning whether traditional business models can hold against AI-driven alternatives.
AI is forcing a rethink of software business models
Citi’s warning goes beyond short-term price action. The firm highlighted a growing trend of software optimization and vendor consolidation, as companies look to cut costs and streamline operations in an AI-driven world.
That could mean fewer contracts, tighter budgets, and more competition. Especially as AI tools begin to replicate or replace existing software functions. At the same time, AI spending is expected to grow rapidly.
But here’s something you might need to think about. Much of that spending may go toward new AI-native companies rather than traditional software providers.
That creates a tricky dynamic. So, AI isn’t necessarily replacing software overnight, but it is reshaping where investment flows. The companies involved may still be strong over the long term. But in the near term, uncertainty is rising, and the path forward looks less predictable.
So, it’s a race against time. Either these software giants adapt quickly, or AI rewrites the rules before they can catch up.
Related: Goldman Sachs drops a bombshell on software stocks