"Some companies no longer have a right to exist": On the way to another wave of layoffs in Israeli high-tech?
Monday laid off hundreds of employees despite excellent performance, as AI tools reduce the need for users and hurt the SaaS model (annual payment per user). A similar phenomenon has already affected Salesforce, Wix, and Adobe. Venture capital investors explain the profile of the companies being hit, who else might be affected, and what mistakes to avoid.
The Israeli company Monday, which announced last week the layoff of 620 employees, about 20% of its workforce, surprised many. On paper, there is no reason for the company to need such a painful cut. Its business performance is reasonable, revenues are growing, and the company even increased its expectations for operating profit growth in the next quarter. So why, in fact, is it required to reduce employees and office space, what do investors want from it?
Monday is a clear example of companies falling victim to the artificial intelligence threat. It has grown in recent years on the waves of the "Software as a Service" (SaaS) model, where a software company receives an annual subscription fee based on the number of users at the client (Per-Seat Pricing). The commitment for a year in advance allowed the company to summarize the expected recurring revenue from all clients (ARR), and the growth in ARR was the most distinct indicator of the company's strength. Now all this is changing.
AI poses a strategic threat to these companies because artificial intelligence tools streamline and reduce work teams at clients, they pay for fewer users and significantly reduce annual payments. Thus, the revenues of software companies are shrinking. And here lies the heart of the problem: this has happened many times and investors predict that it will happen again and again. They are losing faith in SaaS companies and withdrawing their investments, even if the companies' business performance is flawless.
This phenomenon emerged in its peak severity a few months ago, when OpenAI and Anthropic began releasing AI tools capable of performing work such as writing code, reviewing legal contracts, and other tasks that reduce the need for expensive software in the SaaS format. A long list of companies has been affected, including Salesforce (which invented the SaaS model), Zendesk, Adobe, Intuit, and also the Israeli Wix, ZoomInfo, or Amdocs.
Layoffs are not a magic pill, and among investors and venture capital funds, it is well known that the story does not end there. Everyone can predict to you who will be the next companies to fall due to the AI threat, and it doesn't matter if they are selling like crazy and maintaining growth: their model has been undermined and they must act drastically before the blow lands on their heads.
Wall Street proves in 2026 that layoffs alone are not a magic pill. If layoffs are perceived as a proactive move for a rapid transition to more efficient technology (as in the case of Monday, which also raised operating profit forecasts) — the market may reward the stock. But if layoffs are perceived as a defensive step in the face of inevitable revenue loss (as in Wix and Amdocs) — the stocks continue their journey downward.
There are several indicators that allow predicting the next AI victims: companies with a continuous slowdown in ARR growth, companies whose stock has lost over 30%-40% of its value since the beginning of the year due to the AI threat, companies that declare a transition from a "per-user" model to an "AI consumption" model. Investors are nervous, the finger on the "sell all" button is trembling. Any signal from the market could cause a catastrophe.
In Israeli venture capital funds, there is some concern, but it seems there is no panic there. The fund partners we spoke with say there is a way to deal with the AI threat, and there is also a way to choose startup companies at early stages that will not be affected by the AI threat. Maor Friedman, a general partner at the venture capital fund F2, says that Monday's main problem is being a "horizontal" company, meaning it develops solutions across the entire technological front: "These are the companies that were hit the most by the surge in AI usage by Anthropic, OpenAI, and the like. Wave coding tools of all kinds have greatly affected them. In all these companies, the stock price, which is what caused the pressure, was not affected by the companies' business performance, but by investors' expectations, and the stocks there were really cut."
It seems investors are not interested in business performance. "True. The market today is in a very noisy state. Every small announcement makes it jump. There is a very large shift of capital from "hyper-scale" companies, the large cloud companies, to chip companies. You see the cash flow."
So what actually happened to the SaaS model that until recently was the ruler? "What happened is not that the model is wrong, but that the moats (water channels around the fortress) were eroded as a result of AI, and then, as a result of this, you see horizontal companies being hit. When I look at young companies, I check if it solves a big problem using a deep technological solution. In software companies, it is very difficult to build moats, so I go to vertical companies. There, there is meaning for expertise, for knowledge, for workflow, and uniqueness can be built. I don't make my decision based on whether it is a SaaS company or not."
Looking for software to replace a human. Alon Huri, a managing partner at Team8, says: "Every time Anthropic releases a model, it sits exactly on the same fear and anxiety/FOMO, and then immediately investors say 'this thing will no longer be needed, whoever sells this function is redundant'. But if that same company manages to make the transformation and instead of letting the software replace the service provider, then it is a valid business and then it can be priced differently. But everywhere it doesn't succeed, the company collapses. The initial reaction to such a thing is first of all a collapse, because that's how investors react to it."
When you look at companies at early stages and you see a SaaS model, then maybe it's not worth investing in it because who knows if in the next rounds investors will want to join the investment in it? "I am looking in advance for companies that do not build software to sell it in a subscription model, but that it comes to replace a human. Let's say you had an accountant and the company Intuit sold you SaaS software for him. Because of this, Intuit crashed. But if the company you are looking at is building a tool that will replace the accountant, that is an interesting company. Our investment thesis is that I am looking for those companies that replace some organizational function."
That is, instead of investing in a company threatened by AI, you want to invest in a company that develops the AI that threatens other companies. "Exactly. That it uses this new ability of AI to create something that is worth a lot to customers. By the way, it doesn't have to replace him 100%. If you give him a service with AI that costs him a tenth, even here you are riding the wave."
Yaniv Golan, a partner at the lool ventures fund, says: "It is clear that a dramatic change is happening here and a lot of things are changing simultaneously. I don't think it is clear to anyone at the moment where this is going to stabilize. But it is clear that some companies no longer have a right to exist, and others need to adapt themselves, to change with the market in order to understand together where the right place is where they should stand."
How is this reflected? "If you look at Monday as an example, then it is a very strong company. It looks like it has very stable and strong foundations, with significant growth, with significant gross profit. But the market has put a question mark on it, because all the pricing was built on the assumption that it is a SaaS company, and once it crosses a certain penetration threshold, this means also high and stable customer retention. And AI threatens this whole assumption."
Maybe the problem is in pricing per user. At Monday, they reported that they started pricing some services based on AI usage (tokens). "Using tokens is just a transition point. The industry is getting carried away with pricing by tokens, but I, and many others, think that this is very bad pricing. I don't think our role is to market the services of Anthropic or OpenAI."
There is no doubt that the common investor conversation today is who are the next companies that might find themselves under the wheels of AI. None of the interviewees volunteers to point to specific companies, but everyone says there is no doubt that the event is far from over. "There are a lot of companies that didn't organize in time or that don't have the ability to organize in time in the right direction," says Golan. "It is clear that there are more such companies," says Friedman, "but the right thing is that there are companies that are growing, it doesn't matter now with AI or without AI, and at the bottom line, if the company is growing and raising money, it will be considered a category leader. If the company is not growing, then they excuse it because of AI or because of something else."
