In February, software-as-a-service giants like Salesforce Inc. and Adobe Inc. lost a combined $300 billion in market value. Wall Street quickly dubbed it the ‘SaaSpocalypse,’ an early harbinger that generative artificial intelligence was primed to upend virtually every industry—including the one that created it.

This marked a stark contrast to the last two decades, when Silicon Valley was synonymous with software, where founders built generation-changing companies in a garage, driving valuations into the trillions with just coding by ones and zeroes.

As opportunities for software growth now dwindle in the wake of AI, venture firms are pivoting to hard tech – a cluster of industries encompassing energy, manufacturing, and aerospace.

Hard tech, which requires more upfront capital and necessitates longer lead times, is taking fresh-faced founders out of the garage and into 10,000-square-foot factories to usher in a new industrial revolution. This shift, which uses AI to upgrade factories, weapons, cars, and energy sources, is already visible in places like Los Angeles’ South Bay. The new paradigm has added 11,000 defense and aerospace jobs to the region between 2022 and 2024, according to a report from the Los Angeles County Economic Development Corp.

“People are screaming about the end of software due to AI,” said Brian Garrett, co-founder of Santa Monica-based Crosscut Ventures. “I don’t think it’s actually that dramatic, but it’s naturally leading to an interest back into the hardware sector where there’s more money flowing.”

What’s causing the SaaSpocalypse?

When Snap Inc. announced in April that it would lay off around 1,000 workers, the Santa Monica-based social media giant revealed 65% of its code is generated by AI. The company planned to restructure its org chart around AI to reduce annual costs by $500 million by year’s end.

“We believe that rapid advancements in artificial intelligence enable our teams to reduce repetitive work, increase velocity, and better support our community, partners, and advertisers,” chief executive Evan Spiegel said in a company letter. “We have already witnessed small squads leveraging AI tools to drive meaningful progress across several important initiatives.”

Snap is one of many companies cutting staff to bolster its investment in AI. Companies like Meta Platforms Inc., Salesforce and Coinbase Global Inc. have cut more than 174,000 jobs since 2024, The AI Tech Pulse reported. At the Milken Institute’s 2026 Global Conference held in Beverly Hills this month, industry leaders discussed how once-safe jobs, like the high-paying work of a software engineer, would be upended by AI.

“I don’t believe software engineers are going to disappear altogether. I think what software engineers do and how they do it will look completely different,” said Christoph Schweizer, the chief executive of the Boston Consulting Group. “There will be a lot of need for coding and development because not everything is a new code of new things. There’s also a lot of maintenance.” 

An uncertain market

According to PitchBook, investors repriced the SaaS business model during the first quarter of the year amid AI-related threats, erasing billions of dollars from the market. The enterprise SaaS sector decreased 26% from October.

As AI becomes more integrated into companies’ tech stack, workers are more easily able to “vibe code,” which is to ask AI to code for them what they need, instead of relying on paid subscriptions for workflow software or organizational platforms.

According to Tony Kim, who is the lead portfolio manager of the BlackRock’s Technology Opportunities Fund, AI has made code less valuable, which depreciates the value of software companies.

“What SaaS is, is not code itself,” Kim said at the Milken conference. “It’s just a business model. It is a business model that was built when there was a finite supply of code because only a few developers can write the code. And so, the business model of SaaS is dead.”

The landscape differs sharply from that of the tech industry just a few years ago, when the software powering streaming services, unlimited photo storage, and online shopping laid the foundation for modern everyday conveniences.

“We call these paradigm shifts,” Garrett said. “And the last one was the information age. It was the rise of mobile, the internet, cloud compute and all of the software platforms that governed the new way you access information and use it to run your business.”

A new frontier

As software growth stalls, the long-dormant domestic manufacturing sector is experiencing a renaissance, spurred by substantial public and private investment in domestic production and national security amid geopolitical instability.

Southern California’s hard tech sectors raised a record $6 billion in 2025, according to PitchBook.

So far in 2026, SaaS-related companies in Southern California have raised $880 million. Comparatively, hard tech companies have raised nearly $4.3 billion.

Jobs at tech companies are already mirroring this paradigm shift. At Hadrian Automation Inc., a Torrance-based advanced manufacturing company, 40% of the software engineering team comprises trades workers who have spent decades welding or casting and have been taught to code.

“Especially with AI tooling, I’d say most of our manufacturing engineers are pushing code to our factory automation platform at least weekly, if not daily,” Hadrian Chief Executive Chris Power said.

The potential shift in the job market will impact how students choose what to do post-graduation. At the conference, U.S. Sen. Mark Warner said the transition to an AI future will lead to higher unemployment, and younger generations may not view four-year college degrees as valuable or necessary for entering the workforce.

“The economic disruption is not only going to be for that age cohort, but it’s going to be an awful lot of their parents who are going to be pretty pissed off they spent $250,000 on a higher education that does not appear to provide a career path,” Warner said

Though AI is having such a comprehensive ripple effect on the tech jobs market and education sector, that could all change, according to Garrett. Market forces may very well change course, causing yet another ripple effect through jobs, education and funding.

“Every industry is a prospect for venture dollars, and if not for venture dollars, for private equity and buyout dollars, which usually come in after profitability has been achieved,” Garrett said. “The interest in these categories has (fluctuated) in each cycle. Each cycle has a different hot sector or hot category where you’re seeing hyper growth.”