AI creates terminal value uncertainty for software
The speakers argued that the rise of generative AI has scrambled the historical base rates for traditional software companies, making their long-term terminal values highly uncertain.
The argument
Robert Hagstrom and Chris Mayer discussed how they exited or avoided most software companies because AI makes it impossible to project residual cash flows 10 years out. They argued that while software stocks may look cheap on a reversion-to-the-mean basis, the structural threat of AI prevents investors from establishing a reliable future growth rate.
The thesis, stress-tested
✓ What validates it
- ✓Declining contract values or slowing revenue growth rates for legacy SaaS providers over the next 3-5 years.
- ✓Evidence of AI native startups directly displacing established software workflows.
▸ Risks discussed
- ▸Traditional software companies could successfully integrate AI to expand their addressable markets and defend their moats.
- ▸Oversold software stocks might experience sharp, short-term mean-reversion rallies.
Hear it yourself
"So sometimes, like with AI, when, you know, Robert was saying, you know, you can't you can't really get at the terminal value five years from now because the the the proposition that we're being told about AI is it's it's this godlike thing that's gonna be able to do pretty much everything."
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