Software business models face structural AI headwinds
The bear case argued for software companies is that AI will force a structural shift from seat-based pricing to usage-based APIs, turning software into a low-multiple backend utility.
The argument
The guest compared the software sector to the office real estate sector, where companies continue to operate but investors are unwilling to pay high multiples due to long-term structural uncertainty. He argued that as AI gets smarter each year, the bear case for traditional software improves, potentially turning these stocks into 'dead money' despite lower valuations.
The thesis, stress-tested
✓ What validates it
- ✓Software vendors shifting pricing models from per-seat to usage-based APIs
- ✓Deceleration in net new ARR or seat growth in upcoming earnings reports
▸ Risks discussed
- ▸Time may prove software business models are resilient
- ▸Valuations in some names have already derated significantly
Hear it yourself
"I I most fund managers I speak to are relatively skeptical and careful about malinvestment in AI and whether this is gonna continue and they're bearish on the consumer because he's gonna lose it."
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