The software sector just crossed into acquisition territory. After months of AI displacement fears hollowing out cloud software valuations, the market inflection point has arrived: sellers are desperate, buyers are ready, and the 18-month window for deals closes faster than most realize. Salesforce, ServiceNow, and Adobe down 14-20% in January alone tells the story. This isn't market correction—it's repricing of an entire sector's viability.

Cloud software stocks opened 2026 exactly where they closed 2025: in freefall. The WisdomTree Cloud Computing Fund is down more than 8% so far this year while the broader Nasdaq drifts slightly positive. That divergence matters. It's not a correction—it's a repricing of an entire industry's relevance in an AI-dominated world.

The math is brutal and specific. Salesforce, ServiceNow, and Adobe are each down more than 14% after underperforming the market for a full year. The pain extends deeper: HubSpot, Atlassian, and Braze have already cratered 20% or more in 2026 alone. These aren't speculative names—these are the established players that enterprise IT departments depend on. The question investors are asking isn't whether software works anymore. It's whether it matters when Anthropic's Claude just launched Cowork—an AI agent tool built for the exact enterprise workflows these vendors handle.

What's shifted is the timeline. The displacement threat moved from theoretical to immediate. A senior investor at a major private equity fund told CNBC the disruption is "happening today" and will force midsized software companies to seek financing options or face acquisition. That's not speculation. That's a banker's way of saying: We're liquidating assets now while we still can.

Enter Orlando Bravo and Thoma Bravo, the software-focused buyout firm. Bravo told CNBC's Sara Eisen at Davos this week: "We're seeing just incredible buying opportunities right now." Translation: The market created a pricing window that won't last. His firm is already doing deals and planning to be "a lot more active." That's the signal. When experienced software acquirers say they're buying the panic, the panic is real.

The vulnerability map is already drawn. KeyBanc analyst Jackson Ader identified seat-based application companies—Monday.com, Asana, and Sprout Social—as most exposed because they lack anchor systems of record like ERP or CRM platforms. All three are down double digits. But the danger extends upstream. Even Salesforce CEO Marc Benioff is on defense mode, telling investors at Davos that his company just had "the best quarter we've ever had" and that they're "one of the largest cash-producing companies in the world." His next sentence revealed the real problem: "But it's not enough. Because if you don't produce a large language model, you're evidently not in fashion right now."

That's the inflection point. Software companies built their empires on domain expertise, customer lock-in, and decades of iterative product development. AI agent capabilities are disrupting that moat in months. The market is pricing in a world where domain expertise matters less if autonomous agents can learn and execute those workflows faster.

ServiceNow responded by partnering with OpenAI on Wednesday to offer AI agents to business customers. Smart move tactically. Terrible signal strategically. The stock dropped for six straight trading days before rising Thursday. It's down 17% in January. The market heard the move as: "We're no longer confident we can build this ourselves." Confidence matters more than capability sometimes.

RBC Capital Markets analyst Rishi Jaluria told CNBC that the pullback could force companies to "explore strategic alternatives." His research from late November already identified Asana, Box, and DocuSign as acquisition targets. Watch for that list to expand as Q1 earnings season hits next week. Wall Street gets its clearest picture then of which vendors are actually adopting AI defensively versus which ones are getting swallowed by it.

The timing convergence is what makes this a 2026 inflection moment. On one side: software vendors with compressed stock prices, panicked boards, and shrinking market confidence. On the other: acquirers with cash, vision for AI-augmented platforms, and the ability to roll 3-5 mid-market vendors into consolidated, agent-capable competitors to the pure-play AI companies. The window opens now and closes in 18 months, once the market reprices post-AI adoption evidence. What happens next depends on how fast Cowork and similar tools move beyond proof-of-concept to actual enterprise automation.

The software M&A window is open—and it's narrowing. Valuations compressed by AI displacement fears have created the conditions for accelerated consolidation: desperate sellers, confident buyers, and a clear 18-month timeline before repricing. For investors, this is the moment to identify which vendors will be buyers (those with AI capabilities + cash) versus targets (those with strong customer bases but weak AI positioning). For decision-makers, watch Q1 earnings for clarity on actual agent adoption timelines. The difference between real disruption and market panic will determine deal pricing. For builders, the question is binary: Can you add AI defensively fast enough, or do you become someone else's platform layer?