"Investors fear SaaS demand surge may fade, and cut valuations accordingly"
The rise of AI coding tools and shekel strength create uncertainty for Israeli software companies on Wall Street.
Israeli technology companies helped define the SaaS era. Now the same firms are being repriced for a world in which software can be created in seconds by artificial intelligence.
Over the past year, leading Israeli technology stocks traded in New York have fallen sharply. Nice has lost more than 40%, Wix is down 66%, and monday.com has dropped 60%, dragging the “Israelis Abroad” index down nearly 24%. The contrast with the domestic market is stark: the TA-125 index surged 64% over the same period. The gap between Israeli shares at home and those overseas has therefore reached roughly 88%. Even against the S&P 500, which gained 15.5%, Israeli tech has underperformed by almost 40%.
The slump reflects a double headwind. First, the strengthening shekel erodes profitability for companies whose revenues are mostly in dollars while development costs are largely in Israel. Second, the dramatic progress of AI engines capable of writing code and building customized applications is casting doubt on the long-term relevance of many traditional software models.
In a world where development can be generated on demand by AI, the services offered by companies such as monday.com, Wix, Fiverr, Magic, and Hilan risk becoming more expensive and less attractive. What was once a protected SaaS franchise now faces the prospect of instant, low-cost alternatives.
“There are two forces working against software companies,” says Nadav Zeller, managing partner at Sphera Tech Fund. “The market expects far more solutions based on AI-generated code, and competition will increase dramatically. You can simply tell Claude: ‘I need a tool to share tasks with my team, with these specific features,’ and you get an immediate replacement for a service that used to be costly. Investors fear that the demand surge SaaS companies enjoyed since the shift to the cloud may fade, and the quickest way to reflect that is by cutting valuation multiples. Many have already fallen 40%-60% in the past year.”
Yotam Ironi, head of foreign equities at Altshuler Shaham, points to the latest version of Claude as a turning point. “Unlike other AI engines, Claude focuses on programmers and can essentially replace them in writing code,” he says. “Anyone can ask it to create software, deploy it, and refine it on the fly. This arrived after a period of negative momentum for software stocks, and it triggered real panic. The fear is that new products will be created more easily, intensifying competition with existing vendors.”
According to Ironi, the traditional barriers to entry are crumbling. “In the past, a specialized software company required decades of expertise and teams of programmers to build a product. Today that barrier of time and investment has been significantly eroded.”
Valuation models have been shaken as well. “When investors price a company, they rely on product quality, market position, and growth visibility,” Ironi explains. “Software used to be the classic story: high-quality recurring revenue, large customers, strong gross margins, and predictable price increases. AI innovation has turned that clarity into uncertainty. When the future becomes vague, investors simply lower the price.”
Money is now flowing to sectors with more tangible visibility. “Investors say: here I no longer know what I’ll get,” Ironi adds. “In construction or food companies, pricing is low and the outlook is clearer.”
Is the fate of software companies sealed? Zeller believes it depends on the niche. “Where regulation is critical, like Intuit’s tax-filing software, customers won’t rush to build their own tools because mistakes can be criminal offenses. And if a service is truly cheap and convenient, it will still have a right to exist.”
Ironi agrees that disruption will be widespread. “Every company delivering its service through a screen will change in the coming years,” he says. Yet he cautions against writing off the sector entirely. “There will be winners. Six months ago Google was seen as a loser; today, after Gemini, it’s considered a leader. The problem is that at this pace, we simply don’t know yet who the winners will be.”
