Claude AI Targets SaaS Models, IT Stocks Slide as Layoff Fears Grip Indian Tech Sector

The global technology sector, particularly IT and SaaS-linked stocks, faced heavy pressure this Wednesday, with declines stretching from Wall Street to Dalal Street. Shares of major companies such as Infosys, TCS, Salesforce and other SaaS-driven firms came under selling pressure as investors reacted nervously to rapid advances in Artificial Intelligence—specifically Claude AI.

At the heart of the market turmoil is the growing belief that next-generation AI systems being developed by companies like Anthropic and Google are capable of replacing many functions traditionally delivered through subscription-based software platforms. This fear has sparked a widespread selloff in IT stocks since Tuesday and has reignited speculation about another round of Layoffs in India’s IT services industry.

Claude AI’s latest upgrades have significantly altered investor sentiment. The AI platform recently rolled out multiple advanced plug-ins that allow it to perform tasks across data analysis, sales enablement, marketing, legal research, drafting, and other enterprise functions—areas that have long been dominated by SaaS products.

In simple terms, AI is now demonstrating the ability to perform complex tasks that previously required costly software subscriptions. This shift has raised serious questions about the long-term sustainability of traditional SaaS business models, eroding investor confidence and dragging down valuations across the sector.

Wall Street Flags Claude AI as Catalyst for SaaS Selloff

The growing anxiety around SaaS companies was formally acknowledged in a report released by JP Morgan on February 3. The investment bank identified Claude AI’s new plug-ins as a key trigger behind the escalating selloff in software stocks.

In a note titled “Software Collapse Broadens with Nowhere to Hide as AI Rate-of-Change Is Extrapolated in Both Logical and Illogical Ways”, JP Morgan analysts observed that the downturn had intensified dramatically.

“The software sell-off has intensified and broadened in a particularly jarring manner today,” the report stated, adding that “the latest catalyst appears to be Anthropic’s release of a number of plug-ins for its Claude Cowork product.”

San Francisco-based venture capitalist Talia Goldberg echoed these concerns, highlighting the widening gap between company performance and market valuations.

“The SaaS index is down 32% year-over-year, even though the majority of companies are meeting or exceeding their targets, while the broader markets are up about 15%,” Goldberg wrote, noting that investors are deeply unsettled by the uncertainty created by AI agents eating into SaaS offerings.

Industry Leaders Warn of Structural Shift

Sridhar Vembu, Chief Scientist at Zoho, also weighed in as IT stocks continued to slide. In a post on X, Vembu remarked that markets are increasingly pessimistic about the future of SaaS companies in an AI-assisted development era.

“The Stock Market is becoming very negative about the prospects of SaaS companies in the AI-assisted code era,” Vembu wrote.

He added that the SaaS sector had long been vulnerable, even before the AI boom. “I said the SaaS industry was ready for consolidation long before the AI revolution. An industry that spends far more on marketing and sales than on product engineering was always at risk. AI is the pin that is popping this inflated balloon,” he noted.

Will Falling Stocks Lead to Fresh Layoffs?

As stock prices tumble, speculation around layoffs in IT services companies has intensified. While Indian IT giants such as Infosys and TCS have not officially announced any new job cuts, market watchers believe workforce reductions could be the next logical response to shifting business dynamics.

Social media chatter has only added fuel to these fears. One X user, claiming to be an AI analyst, wrote that SaaS companies may cut stock-based compensation (SBC) by reducing headcount.

“They’ll do this by terminating workers. I expect a bloodbath—25% reductions this year, 80% through the cycle. Revenues will grow, but AI firms are far more capital-efficient,” the post claimed.

Another IT professional and investor from India shared similar concerns, stating, “As a stock market investor, I’m exiting IT stocks. This change terrifies me as a software developer. Layoffs are still ongoing. More are coming.”

In many ways, job losses are already a reality. According to an Economic Times report, India’s large IT firms added just 17 net jobs in the entire year, largely due to massive layoffs at TCS—estimated at around 30,000 employees—in 2025.

The broader consensus within the industry is that hiring has slowed sharply, with companies choosing not to backfill positions vacated by attrition. The latest slump in IT stocks, driven by fears around AI-led disruption, risks worsening an already fragile employment outlook for India’s tech workforce.