The software sector just crossed a valuation inflection point. What started as uncertainty around whether traditional software business models can survive AI automation has crystallized into measurable market repricing. Investors are recalibrating how they value software companies—moving away from classic SaaS metrics like customer acquisition cost and lifetime value, pivoting instead toward AI displacement risk assessment. This isn't a gradual transition; it's happening now, and it's changing capital allocation timelines across the entire enterprise software sector.

The sell-off in software stocks tells a specific story if you know where to look. It's not just that valuations are falling—they are—but rather how they're falling reveals what's actually changed. The market has stopped valuing software companies primarily on their growth rates and customer retention metrics. It's started valuing them on whether their core business model survives AI displacement.

This is the inflection point: The moment enterprise software investors shifted from asking "Is this company growing?" to asking "Will this software even be needed in two years?" That question has been lurking since OpenAI's valuation inflection point made clear that generative AI could compress years of workflow automation into weeks. But it's become concrete only in the last few days, reflected in a specific valuation metric that the broader market is now reassessing.

The timing matters enormously. Companies like Axon have already demonstrated the pattern—their enterprise customers are automating core workflows with AI, but Axon captured that transition by positioning as the data provider that makes automation possible. Most traditional software companies didn't prepare for this role reversal. They built products to centralize workflows. They built products to make humans more efficient. Now they're facing customers who are asking whether they need workflows at all.

The repricing is visible in traditional SaaS valuation models. Enterprise software companies that still trade on revenue multiples and net retention rates are being marked down. The investors marking them down aren't suggesting these companies will die tomorrow. They're suggesting the valuation framework itself is broken. A software company with 120% net retention looks less attractive when 30% of that retained value might be displaced by AI automation within 18 months. A software company growing at 30% looks different when the market is questioning whether that growth is sustainable against autonomous agents that can do the same work for 1% of the cost.

Consider what this means across different timeline horizons. Investors with a 2-3 year thesis are adjusting now because they need to understand which software categories survive that window intact. A CRM system that automates customer interactions with AI looks defensible. A data entry platform does not. A scheduling tool increasingly looks vulnerable. Enterprise software that functions as infrastructure for other AI systems looks safer. The market is starting to price these distinctions, and the companies that haven't thought through which category they're in are taking the sharpest repricing hits.

For enterprise decision-makers, this repricing creates an odd window. The software vendors offering the deepest discounts right now are often the ones most vulnerable to AI disruption—they're desperate to lock in multiyear deals before the market fully reprices them. The vendors holding prices are betting they've built something AI-proof. Neither signal is reliable, but the divergence is widening. This is exactly when software buying decisions become most dangerous—when vendors are most motivated to misrepresent their moat.

The broader pattern mirrors previous inflection points when business models themselves shifted. This isn't like the 2020 SaaS correction when growth rates normalized. This is like the moment cloud computing made on-premises software structurally obsolete. Except this time it's not technology replacing technology—it's AI automation replacing the entire category of software designed to help humans do repetitive cognitive work.

What to watch: The companies that openly acknowledge this threat and reposition toward AI-enabled workflows will likely recover their valuations fastest. The companies that defend their legacy business model will face ongoing repricing pressure. The valuation metrics being reassessed right now—customer concentration, land-and-expand potential, switching costs—are all being reweighted under the assumption that AI changes the cost of switching and the stickiness of workflows. That assumption is spreading through the market faster than individual companies can respond to it.

The software sector's repricing isn't a temporary correction—it's a valuation framework reset triggered by real uncertainty about which business models survive AI automation. For investors, the window to reassess software holdings based on AI defensibility is open NOW; after the repricing settles, valuations will reflect this new reality permanently. Enterprise buyers should interpret deep discounting as a stress signal about the vendor's confidence in their moat. Decision-makers have 12-18 months to understand which of their software stack is defensible infrastructure versus vulnerable automation targets. This transition will determine which software companies attract capital at all six months from now.