'AI isn’t the real villain': Zoho's Sridhar Vembu says tech stocks sell-off was inevitable
According to Vembu, the pain in software stocks is overdue. “I don’t see why any mature software company should trade at 30-40 price-to-earnings multiples,” he wrote, adding that valuations of 10 to 15 times earnings are more realistic in a competitive market.
- Jan 31, 2026,
- Updated Jan 31, 2026 5:28 PM IST
Zoho founder Sridhar Vembu has poured cold water on the idea that artificial intelligence will “destroy” the software industry, even as global tech stocks slide sharply and investors reassess sky-high valuations. In a detailed post on X, Vembu argued that the current sell-off reflects long-standing excesses in pricing and business models rather than an AI-led apocalypse — though he acknowledged that AI will sharply accelerate competition and compress costs.
Vembu’s comments came as the global software sector entered bear-market territory, down over 20% from recent peaks, despite several marquee firms beating earnings and revenue expectations. Shares of Microsoft, Salesforce, ServiceNow and SAP all fell steeply in recent sessions, wiping out hundreds of billions of dollars in market capitalisation and triggering a broader debate about whether AI is undermining the very companies that invested most aggressively in it.
Valuations, not AI, in the firing line
According to Vembu, the pain in software stocks is overdue. “I don’t see why any mature software company should trade at 30-40 price-to-earnings multiples,” he wrote, adding that valuations of 10 to 15 times earnings are more realistic in a competitive market. He also warned that earnings themselves are likely to come under pressure as customers push back against what he described as “exorbitant prices”.
Calling out large SaaS players such as Salesforce and ServiceNow, Vembu criticised a growth model built around using “high-flying stock to acquire start-ups and then use high-pressure sales teams to upsell.” Once both high multiples and elevated earnings come under strain, he said, the impact on such companies would “feel like death”.
Crucially, Vembu rejected the idea that AI alone is to blame. “I like to think it is good old-fashioned competition,” he said, arguing that software markets are finally behaving like mature industries rather than perpetual growth stories.
The ‘AI destroys software’ narrative
The post Vembu was responding to took a much harsher view. It described the recent market action as a watershed moment in tech history, arguing that investors have concluded AI makes traditional software business models obsolete. The argument centres on the idea that if AI can write code, automate workflows and generate applications cheaply, the per-seat, per-license pricing model that powered SaaS giants for the past decade collapses.
Examples cited include Klarna’s decision to remove Salesforce from its tech stack and build in-house tools using AI, and the sharp declines in shares of firms such as Atlassian, Intuit, HubSpot and Zscaler — many of which have invested heavily in AI acquisitions and products. In contrast, hardware and semiconductor companies enabling AI development have continued to rally, underscoring what some analysts see as a brutal divide between AI “builders” and AI “victims”.
Market commentators have framed the sell-off as a “P/E multiple compression crisis”, suggesting investors are no longer rewarding stable growth or solid earnings if they doubt the long-term survivability of a business model in an AI-first world.
AI as an accelerator, not an executioner
Vembu’s view is more nuanced. He agrees that AI will dramatically reduce the cost of building and running enterprise software, but sees that as an opportunity rather than an extinction event. “My bet is far lower cost of enterprise software,” he wrote, adding that AI will accelerate competition rather than eliminate the need for software altogether.
He also pushed back against the notion that all enterprise applications will simply be built in-house at negligible cost. While possible in some cases, Vembu suggested a more likely outcome is a reshaped market where customers demand simpler, cheaper and more transparent software — and punish vendors that fail to adapt.
An opening for Indian IT services
One of the most striking implications of Vembu’s analysis is what it could mean for Indian IT services firms. As global enterprises question expensive SaaS subscriptions, Vembu believes services companies could step in to replace platforms like Salesforce, migrate customers and deliver savings of 60–80%.
“That is a huge opportunity for IT services firms,” he said, framing the current turmoil as a potential transfer of value from high-margin global software vendors to cost-efficient service providers, particularly from India.
For Vembu, the message is clear: AI is not killing software — it is forcing it to grow up.
For Unparalleled coverage of India's Businesses and Economy – Subscribe to Business Today Magazine
Zoho founder Sridhar Vembu has poured cold water on the idea that artificial intelligence will “destroy” the software industry, even as global tech stocks slide sharply and investors reassess sky-high valuations. In a detailed post on X, Vembu argued that the current sell-off reflects long-standing excesses in pricing and business models rather than an AI-led apocalypse — though he acknowledged that AI will sharply accelerate competition and compress costs.
Vembu’s comments came as the global software sector entered bear-market territory, down over 20% from recent peaks, despite several marquee firms beating earnings and revenue expectations. Shares of Microsoft, Salesforce, ServiceNow and SAP all fell steeply in recent sessions, wiping out hundreds of billions of dollars in market capitalisation and triggering a broader debate about whether AI is undermining the very companies that invested most aggressively in it.
Valuations, not AI, in the firing line
According to Vembu, the pain in software stocks is overdue. “I don’t see why any mature software company should trade at 30-40 price-to-earnings multiples,” he wrote, adding that valuations of 10 to 15 times earnings are more realistic in a competitive market. He also warned that earnings themselves are likely to come under pressure as customers push back against what he described as “exorbitant prices”.
Calling out large SaaS players such as Salesforce and ServiceNow, Vembu criticised a growth model built around using “high-flying stock to acquire start-ups and then use high-pressure sales teams to upsell.” Once both high multiples and elevated earnings come under strain, he said, the impact on such companies would “feel like death”.
Crucially, Vembu rejected the idea that AI alone is to blame. “I like to think it is good old-fashioned competition,” he said, arguing that software markets are finally behaving like mature industries rather than perpetual growth stories.
The ‘AI destroys software’ narrative
The post Vembu was responding to took a much harsher view. It described the recent market action as a watershed moment in tech history, arguing that investors have concluded AI makes traditional software business models obsolete. The argument centres on the idea that if AI can write code, automate workflows and generate applications cheaply, the per-seat, per-license pricing model that powered SaaS giants for the past decade collapses.
Examples cited include Klarna’s decision to remove Salesforce from its tech stack and build in-house tools using AI, and the sharp declines in shares of firms such as Atlassian, Intuit, HubSpot and Zscaler — many of which have invested heavily in AI acquisitions and products. In contrast, hardware and semiconductor companies enabling AI development have continued to rally, underscoring what some analysts see as a brutal divide between AI “builders” and AI “victims”.
Market commentators have framed the sell-off as a “P/E multiple compression crisis”, suggesting investors are no longer rewarding stable growth or solid earnings if they doubt the long-term survivability of a business model in an AI-first world.
AI as an accelerator, not an executioner
Vembu’s view is more nuanced. He agrees that AI will dramatically reduce the cost of building and running enterprise software, but sees that as an opportunity rather than an extinction event. “My bet is far lower cost of enterprise software,” he wrote, adding that AI will accelerate competition rather than eliminate the need for software altogether.
He also pushed back against the notion that all enterprise applications will simply be built in-house at negligible cost. While possible in some cases, Vembu suggested a more likely outcome is a reshaped market where customers demand simpler, cheaper and more transparent software — and punish vendors that fail to adapt.
An opening for Indian IT services
One of the most striking implications of Vembu’s analysis is what it could mean for Indian IT services firms. As global enterprises question expensive SaaS subscriptions, Vembu believes services companies could step in to replace platforms like Salesforce, migrate customers and deliver savings of 60–80%.
“That is a huge opportunity for IT services firms,” he said, framing the current turmoil as a potential transfer of value from high-margin global software vendors to cost-efficient service providers, particularly from India.
For Vembu, the message is clear: AI is not killing software — it is forcing it to grow up.
For Unparalleled coverage of India's Businesses and Economy – Subscribe to Business Today Magazine