From Monday.com to Wix, AI upheaval shakes up Israel’s software industry

In 2011, Marc Andreessen, co-founder of Andreessen Horowitz, one of the world’s most successful venture capital firms, wrote his famous essay “Why Software is Eating the World.” The central argument of the article, published in the Wall Street Journal, was that software is no longer a separate industry, but is ubiquitous and the infrastructure upon which all global businesses are built.

The essay fired the starting gun for an investment frenzy when funds poured money into startups developing enterprise software, swelling them into a swarm of unicorns at the peak of the 2021 bubble.

However, 2026 is becoming a turning point. Software may have eaten the world, but now AI is eating software and, with it, the world.

The rapid adoption of programming solutions based on natural language rather than code (often referred to as “vibe coding”), the rise of increasingly user-friendly AI agents, and concerns about what AI can still do for the software market are already taking a toll on stock prices. Wall Street is known for being nervous on the one hand, and on the other hand for spotting trends about six months before they fully materialize, sending clear signals.

While Wall Street ended 2025 as one of the best years in history, led by the so-called Magnificent Seven tech giants, the software sector was far behind. The SaaS index, which tracks companies that sell subscription-based software to organizations, fell 6.5% compared with the S&P 500’s 17.6% rise.

The hottest companies of the past decade, from Intuit and Atlassian to DocuSign and HubSpot, all showed declines over the last year. The situation worsened in the first two weeks of 2026, with most companies already posting double-digit negative revenues.

Indeed, the restructuring of Israel’s largest Wall Street-traded company is a perfect reflection of the drama taking place in the global software market. Three to five years ago, NICE, Monday.com, and Wix were near the top of the rankings, right behind Check Point and Teva, and sometimes even ahead of them. There are no enterprise software companies in the top 10, except for cybersecurity companies, which are currently considered a separate sector.

Chip companies like Tower Semiconductor and Nova are taking over positions once held by veteran software giants, a direct reflection of the AI ​​era that relies on hardware instead of software. This change extends to the Tel Aviv Stock Exchange as well. Dual-listed NICE was the only stock in the TA-35 index to post a negative return in 2025.

As talk of the “death of SaaS” gains momentum, companies that were once darlings of investors in Silicon Valley and Wall Street are slipping into obscurity. Until recently, the main threat came from a small number of trendy vibe coding startups, such as BASE44, founded by Meir Shlomo, that offer programming through verbal commands that allows almost anyone to build simple applications.

But last weekend, the internet was shocked by the release of Claude Code, an AI agent developed by Anthropic’s Claude. Tasks that people used to put off for weeks because they were too technical, tedious, or unclear are now completed by Claude Code.

Just a few simple instructions and you’re done. Shlomo himself tweeted this week that he heard of a customer who canceled a $350,000 contract with Salesforce after building what they needed in BASE44.

In the United States, a story is circulating about a former Amazon executive who built the entire CRM system, the core product of Israel’s NICE, over a weekend. This was not a large system like NICE offers, but a lean system tailored precisely to the company’s needs.

Anthropic’s successful first officer deployment has reignited panic over the software company’s fate. At the beginning of 2025, the median earnings multiple was still above 7. Today it’s less than 5.

At the same time, the once boring world of hardware, long ignored by both public investors and venture capital funds that favored SaaS with its rapid growth, low capital requirements and high multiples, is heating up and trading at much higher valuations than software.

AI will not only change the way software is built, it will define new business models. Leading companies are beginning to realize that their value lies not in their code, but in their ability to adapt to upheaval.

Still, like any revolution, while enthusiasm for AI vs. software is growing, the reality is that entrenched systems such as ERP and CRM platforms that organizations have trusted for years and invested millions of dollars in are not going to be scrapped overnight.

Additionally, as many developers have noted, once the excitement about AI-based coding dies down in 2026, experienced programmers will need to hunt down errors and bugs introduced by vibe coding in 2027, a process that is likely to consume significant time, energy, and frustration.

The gap between vision and what will actually be possible in the future reminds many of the long-promised self-driving car revolution. The self-driving car revolution was supposed to completely change the traditional auto industry, but that hasn’t happened yet.

There are also scenarios where the use of traditional software will actually increase alongside AI agents. For example, marketing professionals who were once able to send only a limited number of outreach messages can now instantly double or triple that volume using AI agents. Ultimately, software like today’s CRM systems may still be needed to manage large volumes of responses.

AI agents can dramatically increase efficiency, but they also select software that can best absorb that efficiency impact.

Beyond the conclusions that investment funds are forced to draw for themselves, the turmoil has had a significant impact on Israel’s technology sector, with many still holding inventories of software companies whose prospects for a Nasdaq IPO are increasingly uncertain.

Over the past decade, Israel has produced a generation of unicorns, most of which were founded around 2015 and focused on enterprise software. An entire ecosystem of employees, investors, and startups has grown up around them, trying to replicate that success, which now looks far from guaranteed.

The SaaS model, which reached its golden age during the COVID-19 pandemic, has worked extremely well for the Israeli tech industry. Products can be sold online, require no complicated installation or training, and are easily billed per user. Access to the market was uniform, so the fact that a company was Israeli was largely irrelevant.

Another advantage that Israeli companies have leveraged is that they speak the language of the technology itself. Many are focused on selling to other tech companies, and today those same customers are among the first to replace legacy software with agile, in-house AI-based solutions.

In a world where software is out and hardware is in, geography becomes much more relevant. Growth is more difficult, requires significant investment in development and subsequent manufacturing, and the sales process is completely different from a cancelable software subscription.

Along with questions about the fate of public software companies and enterprise software startups, equally pressing questions are emerging. The question is what this software earthquake will bring to Israel’s high-tech sector.

“Today, a founder who takes a SaaS startup to a venture capital fund will never even get to the pitch stage,” said Dean Shahar, managing partner and head of Israel operations at DTCP, a $3 billion European fund.

“The world of SaaS is dying. Not as software, but as a business category. AI has turned software into a commodity where competitive advantage is nearly impossible. Features, user experiences, and interfaces that once created differentiation can now be rapidly copied by AI agents,” he says.

Lior Handelsman, currently a managing partner at Grove Ventures and co-founder of SolarEdge, is far from optimistic. “SaaS is not dead, but it faces challenges in sustaining growth,” he says. “Markets are changing and the rules are becoming more complex. Stock markets are always a bit hysterical and may be pricing in exaggerated scenarios.”

“Coding skills and deep understanding are still required, but the barriers are lower and it is easier to bring the first product to market quickly and prove feasibility,” he added. “At the same time, the existing market is shrinking. Where companies once paid Salesforce for every module and feature, organizations are now looking to build smaller tools themselves using AI.”

Anyone looking to launch a non-cyber enterprise software startup today needs to ask themselves whether they are targeting an area with highly unique data that is inaccessible to AI models, or whether they can develop truly distinctive algorithms, he says.

Aron Fourie, co-founder of Next Insurance, which was sold to Munich Re last year for $2.6 billion, and now a partner at venture studio Team8, also thinks it’s too early to praise software companies.

“The questions have changed,” Fourie said. “It’s no longer about what you deliver to your customers, but how you deliver it. Companies with more than 500 employees need to rethink their structure. CEOs need to wake up and decide which features they still need and which ones they don’t.”

Houri says he is currently building the startup with three founders who are also developers on Team8 and two to three outsourced programmers from India and Ukraine. “This small group is doing what 30 people were doing at Next. This is the real earthquake. AI needs to increase productivity by a factor of 10. What used to take 10 people now takes one person to do.”

Both Houli and Chahal believe that the software market won’t disappear anytime soon, but that pricing models and efficiency metrics will change. Houri predicts that investors will no longer focus on absolute ARR, but on per-employee ARR. Chahal expects marketing software pricing, for example, to shift toward charging based on the incremental sales generated by the software.

Although much of Israel’s ecosystem still relies on software, optimism about the future persists, primarily because Israel has deep roots in hardware and deep technology. From the mid-1990s, the foundations of Israel’s technology sector were further built on physical communications infrastructure and chips.

These areas fell out of favor with funds looking for a quick exit, but now the wheels are turning again. “Historically, Israel has always excelled in deep technology, so there’s no reason why it can’t be just as successful in the new world,” Shahar said.

Handelsman added that unlike the dot-com bubble, AI faces real-world physical constraints, from power shortages in data centers to long latencies for GPUs and transformers. “The physical infrastructure cannot keep up, and that’s where Israel has a real opportunity to provide an important solution,” he says.

Current reality is not the final decision. We are in the midst of a revolution whose end point is difficult for even leading experts to imagine. The sharp decline in software stocks may prove to be an exaggeration and stabilize as concerns subside.

Organizations, especially large ones, are slow-moving and reluctant to replace core systems that centralize customer data, billing, and account management. They will continue to purchase software, albeit at a slower pace.

Even long-established companies with deep financial resources are not staying silent. NICE has paid $1 billion to German AI startups to accelerate their entry into the field. Monday.com has rolled out a series of AI-powered products. Wix has done both, acquiring BASE44 last summer and recently launching a new AI-powered website builder that it plans to promote during the upcoming Super Bowl.

Young start-ups and high-tech companies are expected to adopt new technologies more quickly, contributing to the slowing of the growth of established software companies, which could instead evolve into profitable value stocks with dividends.

A more complicated story lies in a startup software company that planned to IPO at a high valuation. That could put pressure on private equity funds to seize opportunities to buy at low prices, accelerating a wave of mergers and acquisitions. Thoma Bravo founder Orlando Bravo told CNBC over the weekend that the market is full of “incredible buying opportunities.”