SaaSpocalypse. The word was coined in 2022, when the pandemic boom stocks such as Zoom, Cloudflare and others started to collapse. Now it’s back and all over my social media timelines.
The idea is that software-as-a-service (SaaS) is dead because of vibe coding — the process of using AI to write code in double quick time, while it would take hours for humans to do it. In other words, people with little or no coding experience are using AI to vibe-code apps and programs that actually work.
I’ve tried it and it is wild how good it is. I used to use Adobe Photoshop but got tired of the monthly cost. So I’ve been using the free image editing software GNU Image Manipulation Program. For a test I vibe-coded a front end that has the look and feel of Photoshop, and it worked. Well, it mostly works; sometimes it crashes.
This saves me $20 a month, though, granted, it has taken a ton of my time as I try to get the software stable.
So why is vibe coding supposed to be killing SaaS?
Well, the idea is that companies that spend billions every year on SaaS will just vibe-code their own software and cancel their SaaS contracts.
This is not a new trend; it’s been going on for a few years
But this fails on two key points.
First, companies have always been able to code their own SaaS replacements. Sure, vibe coding would, in theory, be quicker and cheaper, but a company could always replace their SaaS. But as the Spar SAP upgrade showed, it doesn’t always end well.
Second, companies aren’t all that concerned about their SaaS contracts. They pay a set fee for software and have been doing so forever. You never hear of corporates wanting to get off Microsoft Office; meanwhile, there have been free Office alternatives for two decades.
So how bad is this SaaSpocalypse? The iShares Expanded Tech-Software Sector ETF (code IGV) is down almost 30% from its October highs. In a world of the Magnificent 7 and AI hyper-scalers, that is a lot. But the reality is that it’s back at April 2025 levels, which are also the same levels it traded at in early 2024. Zooming out, it has always been a volatile index.
So, let’s look at the SaaS Rule of 40, which is a benchmark for these stocks. Simply, it adds revenue growth rate and profit margin, and if the result is above 40, it’s all good. Anything below 40 raises concerns.
A lot of large SaaS stocks are around the 40 benchmark, and several of them are under 40, some by a long way. But this is not a new trend; it’s been going on for a few years. In other words, maybe SaaS is just a maturing sector that is adjusting to slower growth while remaining profitable. Maybe it’s not being killed off by vibe coding.
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