Vertical software has seen a significant decline this year, dropping 43%, while development tools have only fallen 21%. The 22-percentage point difference indicates market sentiment about AI's impact. Many investors are concerned that AI will replace certain software categories, but this view overlooks the strengths of vertical software companies like Veeva, AppFolio, and Procore. These firms have established strong barriers to entry through regulatory compliance, deep integrations, and extensive domain data, making them tougher to displace than general workflow tools. Despite their advantages, these vertical software firms are trading at lower valuations due to their slower growth rates. On the other hand, workflow companies like Monday, Asana, and Smartsheet have experienced a smaller decline of 39%. There are two clear clusters emerging in the software market: slow growers, which include vertical and workflow software with growth rates of 8% and 11%, respectively, and fast growers like data infrastructure and security, with growth rates of 22% and 21%. The performance gap of about 20 percentage points between these clusters highlights a strong correlation between growth expectations and revenue multiples, with a correlation coefficient of 0.51. AI is reshaping the economics of software development. Increased code generation leads to a higher demand for management and deployment resources. Atlassian's recent earnings reflect this shift, showing a 26% increase in cloud revenue, surpassing $1 billion for the first time, and a 44% year-over-year growth in remaining performance obligations (RPO). The demand for data infrastructure is driven by the growing need for managing AI queries and operations, while security remains a crucial area for enterprises as AI adoption introduces new vulnerabilities. Investors are questioning whether companies can sustain growth when automation makes existing customers more efficient rather than simply expanding the customer base. Companies facing skepticism are experiencing the steepest stock declines.