Stifel analysts warn that the current AI-driven slump in enterprise software stocks may mirror the 14-year eCommerce recovery period of the late 1990s. Just as retailers like Walmart and Costco adapted to digital disruption, software incumbents face pressure to monetize AI innovations or risk stagnation. The analysts draw parallels between today’s margin pressures—driven by AI infrastructure costs—and the SaaS transition’s historical shift from on-premise models, where gross margins initially dipped before stabilizing.\n

The firm compares software stocks to eCommerce archetypes: dominant players (Walmart), high-growth challengers (Costco), and niche survivors (Macy’s). Notably, they rule out public bankruptcies (Bed Bath & Beyond scenario) but caution valuations remain range-bound, with the iShares Tech-Software ETF trading at 3.9x EV/NTM Revenue—down from a peak of 16x. While private equity’s role in rescuing the sector has diminished, data, infrastructure, and security names are favored for resilience, as seen in recent performance from Cloudflare and Salesforce.\n

Valuation multiples reflect uncertainty: IGV’s 22.8x EV/NTM FCF sits below its 20-year average of 38.2x, suggesting a margin reset akin to the SaaS era. Critics argue AI’s current hype may fade, leaving incumbents scrambling to justify capex. The analysts stress that agentic AI adoption will hinge on whether firms can transform tools into revenue streams rather than cost centers. This historical lens underscores the difficulty of predicting software’s next “Azure moment” that could reignite growth.\n

Market participants should brace for sector-specific headwinds, as the Stifel team concludes. With no imminent V-shaped recovery in sight, the software/AI transition may test investor patience for years—much like eCommerce’s decade-long climb post-2000.