Finance boomers love a good narrative. Right now, the story du jour is that AI is killing SaaS companies because "you can just build everything in-house now." It's a tidy explanation for why software stocks are down. It's also complete nonsense.
Here's the actual data: Tech stocks are down across the board - including the AI darlings everyone claims are winning. NVIDIA, the golden child of the AI boom, is down from over $200 to the mid-$170s. They dropped 4% on a record-breaking earnings report in February. Does that sound like a company benefiting from the "AI revolution"?
Microsoft, which has crammed AI into every product and spent billions on OpenAI, dropped 12% on earnings and is down over 30% from its peak. Oracle, despite going all-in on data centers and joining the Stargate project, is down 50% from peak. This month they're cutting 30,000 people.
So how exactly is this a "SaaS-only" problem when all the AI companies are bleeding too?
Case in point: Medallia. The company is in the news for its failing private credit situation with Blackstone. On the surface, it looks like the SaaSocalypse narrative, right? Wrong. Medallia's platform heavily utilizes AI technology to analyze customer data. If AI were the efficiency miracle everyone claims, Medallia should be printing money with a skeleton crew. Instead, they're drowning in $3 billion of debt with annual servicing costs exceeding their $200 million in earnings.
As one Reddit analyst pointed out: "If the AI hype were true, they should just be one guy and his dog now controlling a team of agents maintaining all this software for dirt cheap right? Right!? But it's all bullshit."
The real story: This isn't about AI killing SaaS. It's about overleveraged tech companies getting crushed in a high-rate environment. Private credit lenders like Blackstone, Apollo, and KKR financed these companies based on revenue growth, not profitability. Now that rates are elevated and growth has slowed, the debt loads are unsustainable.
The original Medallia financing relied on revenue metrics in a zero-rate world. That world is gone. And the AI efficiency gains that were supposed to save these companies? They're not materializing fast enough to offset the debt service costs.
What this means for your portfolio: If you're buying the "AI wins, SaaS loses" narrative, you're missing the bigger picture. The entire tech sector is repricing because interest rates matter. High-growth companies with questionable profitability - whether they're "AI-powered" or not - are getting hammered.
The narrative that AI companies are immune is propaganda. NVIDIA, Microsoft, and Oracle are all down double-digits despite being at the epicenter of the AI boom. That should tell you everything you need to know.
The bottom line: The SaaSocalypse is a convenient story for people who don't want to admit the entire tech sector is overvalued in a high-rate environment. Don't fall for it.
