Software sector sell-off was overdone
The guest argued that the massive sell-off in software stocks driven by fears of AI disruption was overdone, as enterprise-scale software cannot be easily commoditized in the near term.
The argument
The guest explained that while cyclical risks like seat compression and higher cost of capital are real, the super-secular threat of AI completely replacing enterprise software is at least five years away due to the high cost of software maintenance and scale. After shifting to overweight during the sell-off, the guest's firm has returned to a neutral stance following a 20% rally.
The thesis, stress-tested
✓ What validates it
- ✓Stabilization of software enterprise seat licenses
- ✓Continued revenue growth in major SaaS providers despite AI tool adoption
▸ Risks discussed
- ▸Seat compression from AI adoption
- ▸Higher cost of capital limiting M&A
- ▸Long-term threat of agentic AI and software commoditization
Hear it yourself
"And you see those in things like trend following, alternative risk premia, long short equity strategies, you know, things that are, you know, investment strategies that are designed to do well when equities sell off, not necessarily, you know, bonds, as I said, that just yields, you know, did well for a long, long time. So for for a long time, it was true that there was a negative correlation between the returns of bonds and the returns of stocks. Right? And that is no longer true. Those are facts. Yeah. I mean, the stock bond correlation is a tricky thing because it depends over the window at which you are measuring that correlation."
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