Software's AI Discount Could Be the Next Opportunity
Chart in Focus: Software Relative Value
Once prized for their repeatable reliable cashflows and solid pace of growth, software stocks have gone from trading at a major Premium —to now a material Discount vs the rest of tech.
The market has jumped to the conclusion that software is a sunset industry in the AI-age (given AI makes coding easier, and has made some software applications obsolete; increasing the pace of disruption). And as we can see in the chart below, relative-valuations have reflected that sentiment almost overnight.
But when I see charts like this I think: that’s an extreme, and extremes can be a great source of opportunity.
+when I hear the grim prognosis for software I think: wait a minute, if AI is really that useful then why can’t software companies use it? Why can’t they roll out AI-integrations to their existing customer base? Why can’t they achieve greater efficiency and impact by using AI in their business? …and also, on the barriers to entry falling —can new Startups vibe-coding new software really actually compete with the powerful brand and distribution edge that existing software incumbents hold?
$S&P 500(.SPX)$ $NASDAQ 100(NDX)$ $Invesco QQQ(QQQ)$ $iShares Russell 2000 ETF(IWM)$
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