Chris Dalton

Software Stocks Are Tanking and Our Renewal Quotes Are Somehow Going Up

February 18, 2026

Our renewal quote for one of the tools we use came in last month. I won't say which one. But I'll say it went up, and I'll say the number on the email made me go very still for a second, the way you go still when someone says something at a party that everyone heard but no one is going to address. I just sat there. I nodded, I think, even though I was alone.

Meanwhile, software stocks are having what analysts are charitably calling a rough stretch. The S&P North American software index posted its biggest monthly decline since October 2008 in January alone. The IGV ETF, which tracks North American software, was down close to 30% off its September peak by early February. Salesforce lost 26% of its market cap. Adobe fell 19%. Atlassian dropped 30%. One Jefferies trader coined the term "SaaSpocalypse" and hedge funds reportedly earned $24 billion shorting software stocks during the slide. Twenty-four billion dollars. I don't know what to do with that number. I just keep picturing someone's very nice boat.

So: the companies that make the software are hemorrhaging value. Their investors are panicking. Traders are, per Yahoo Finance, operating in "get me out" mode. And yet my renewal quote went up.

This is not a coincidence. This is the whole story.

What's Actually Happening in the Market

The SaaS crash narrative has centered heavily on AI disruption - specifically, the fear that tools like Claude, ChatGPT, and a wave of AI-native platforms are going to hollow out the installed base that legacy software companies have spent a decade building. Anthropic's release of Claude Cowork was enough to send Intuit's stock plummeting 16% in a single day, while Adobe and Salesforce each lost more than 11%. That's a preview of a tool, not even a full release. Just the idea of it was enough.

But here's what I think gets underreported in all the doom coverage: the public markets are not reacting to something new. Public SaaS growth rates have declined every single quarter since the 2021 peak. Every single one. The AI disruption narrative just gave the market permission to price in what the numbers had been signaling for years. The sector's forward P/E collapsed from roughly 35x at the end of 2025 to around 20x - back to levels not seen since 2014. That isn't a correction. That's a reckoning.

And the reckoning is partly structural. Seat-based pricing, which is the backbone of how most SaaS companies make money, is quietly getting undermined by AI. If AI agents can do the work of a team of people, you don't need a seat for each of those people anymore. One analyst put it plainly: if 10 AI agents can do the work of 100 sales reps, you need 10 Salesforce seats, not 100. That's a 90% reduction in seat revenue for the same output. No wonder investors are nervous.

So Why Is My Renewal Quote Higher

Here's the part that I keep thinking about. Here's where I think businesses need to pay very close attention, because this is not abstract and it is happening to you right now if you are renewing anything.

Strip out the price increases from recent SaaS earnings and look at what's left. Net new customer numbers are weak across the board. Expansion is slowing. What's propping up the revenue numbers is vendors raising prices on existing customers - the people already locked in. For Salesforce specifically, price increases contributed approximately 6.3 percentage points of their 8.7% total ARR growth in 2025. That means 72% of their "growth" came not from new customers, not from product expansion, but from charging you more. The product didn't change that much. The price did.

Gartner reports that corporate IT budgets are growing at just 2.8% annually, while SaaS vendors are hiking prices by 9 to 25%. The Vertice SaaS Inflation Index pegs SaaS inflation at 12.2% - nearly five times higher than general G7 inflation rates. SaaS costs per employee hit approximately $9,100 by end of 2025, up from $7,900 in 2023. A 15% jump in two years, and that's before counting whatever just landed in your inbox.

Tory saw my face when I got the renewal email and told me that sometimes disruption is a gift in disguise. He said it with the conviction of a man who no longer has a car. I told him I appreciated that. I held the door for him on the way out. I thought about it for a while afterward.

The AI Bundling Play Is the Real Shake-Down

The mechanism these companies are using to justify increases is, I have to say, genuinely impressive in a way that makes me a little sick. They're calling it AI bundling, and the logic is simple: add AI features to the base tier, declare that the product now includes dramatically more value, and raise the price. Whether you use those AI features or not is beside the point. You are now paying for them.

Adobe restructured Creative Cloud into Pro and Standard tiers with effective increases of up to 27%, bundling generative AI features as the value justification. Google killed the standalone Gemini add-on and folded it into all Workspace Business and Enterprise plans - you can't opt out. Microsoft forces Copilot into M365 subscriptions, adding $20-30 per user per month if you move to tiers that include it. Atlassian increased Jira Standard plans by 5%, Premium by 7.5%, Data Center licenses by 15 to 40%. One Google Cloud partner reported a customer calling them in a panic saying they weren't ready for AI, didn't want it on, and couldn't understand why they'd be paying more for something they didn't ask for.

That customer is most businesses I know.

This is what SaaStr described as the "great re-bundling of AI." Companies launched AI as an add-on, discovered customers weren't buying it voluntarily, and then just folded it into the core price. If you didn't adopt it willingly, they made it mandatory. Shrinkflation affects roughly 28% of SaaS contracts according to CFO Dive research - vendors reducing features or imposing usage limits while maintaining or increasing headline prices. A stated 7% increase can deliver an effective cost jump of 15-25% once you factor in add-ons to replace what you used to get.

Sixty percent of vendors deliberately mask their rising prices, making cost clarity in negotiations harder. That stat is from the Vertice SaaS Inflation Index and I think about it more than I probably should.

Derek explained the plot of Andor to me for 25 minutes last Tuesday while I was trying to read this stuff. I kept nodding. I genuinely could not tell you what Andor is about. But I know exactly what's happening in SaaS pricing, which feels like it might be the more useful thing to understand right now.

The Power Dynamic Is Not What You Think

Here's my actual take, the one I want to put in writing: the companies with tanking stock prices are not negotiating from a position of weakness with you. They are negotiating from a position of captivity. You are captive. Your data is in their system. Your team was trained on their product. Your workflows are built around their interface. Switching costs are enormous and they know it.

Vendors have learned they can raise prices aggressively and most customers will absorb it rather than switch. The power has shifted decisively to the vendors - at least for now. One SaaStr piece put it clearly: 83% of successful renewal negotiations start at least 120 days before the renewal date. Most people start at 30 days, or zero days, when the auto-renewal has already fired. Zoom implemented automatic price increases of 5-25% throughout 2025, even for customers on auto-renewal, and many customers discovered these increases only through automatic payment notifications. That's not a billing quirk. That's a strategy.

Stephanie looked at the renewal numbers and said the increases didn't seem that bad in context. She meant context of what she's used to spending. Linda said Gerald always handles this kind of thing at home and she finds it exhausting. I think they're both right in different ways that I can't fully explain.

The only entity that has actually extracted major concessions recently is the federal government, which used unified purchasing power to get Salesforce to offer Slack to federal agencies at up to a 90% discount. Ninety percent. That number tells you everything about the margin these companies have been sitting on. The government treated itself as a single buyer and used that leverage. Individual businesses don't have that. But the lesson is clear: the only thing that moves the needle is credible leverage, and credible leverage means either having real switching alternatives or the organizational discipline to threaten them seriously.

I tried to audit our software stack last year. I set up the tracking wrong. Everything was being counted twice so it looked like we spent twice as much as we did, which was somehow both better and worse than the truth. I unchecked a box and it fixed itself. I don't know which box. I want to be upfront about that. But I do think the underlying impulse - running an audit, understanding what you're actually paying - is correct, even if my execution needed work.

What I Think Happens Next

I don't think the SaaS companies are going away. I think the ones with genuine switching costs - ERP systems, deeply embedded CRMs, tools that have years of your data and process built in - will continue raising prices and most customers will continue paying them. I think the ones that are genuinely just "a UI with a couple of buttons" are in real danger, because AI-native tools can replicate that functionality fast and cheaper and will.

The market is trying to figure out which is which. That's why you see sector-wide selling even when a company like ServiceNow beats earnings for the ninth straight quarter and still drops 11% in a day. Investors aren't punishing bad results. They're punishing uncertainty about which category each company falls into. The market can't discriminate on fundamentals in the short run when the whole basket gets repriced.

But for you, running a business, paying these bills: I think the pressure will eventually force some vendors to blink. AI-native competitors are real. The threat of seat compression is real. At some point, a customer saying "I now need 10 seats instead of 100 because we automated the rest" is not a theoretical risk - it's an actual conversation happening at renewal tables right now. That's the wild card that may eventually moderate the price increases, not investor pressure, not bad PR. Just genuine alternatives.

Until that day, though, the advice I actually believe is: start renewal conversations earlier than you think you need to, understand exactly what you're being charged for, and push back on AI bundling you didn't ask for and don't use. It feels uncomfortable. Do it anyway. You're allowed to say "we're not using these features, remove them from our tier." Sometimes they say no. Sometimes they don't.

And if you want to understand the broader software stock crash and what it signals for the companies behind your tools, that's worth following closely too. The stock price of your vendor is not abstract information. It tells you how much pressure they're under to extract value from existing customers - which is you.

I'm not angry about any of this, exactly. I just want everyone involved to succeed. The vendors, the customers, the businesses trying to grow with these tools. I hold out hope that something normalizes. I held the elevator for Jamie on Thursday and he spent the whole ride explaining his strategy for renegotiating one of our contracts and I genuinely couldn't tell if it was a good strategy or not, but I told him it sounded solid. I meant it. I think. I hope he's right.

The renewal quote is still sitting in my inbox. I haven't replied yet. I'm waiting until I understand my leverage. That's new behavior for me and I think it's the right call.