Deep Sail Capital
Founder & CIO of Deep Sail Capital, Long/Short GARP, Quality/Growth/Micro-Caps
Constellation Software and Topicus face little threat from AI-built software because end users stay with software they already know and trust. Constellation, as quoted by @TidefallCapital, notes that nurses sometimes quit when their nursing home is bought by an operator using competitor MatrixCare, because so much muscle memory is involved. x.comÂ
Vertical market software could become more valuable as AI agents need its permission, audit and human-control systems to operate safely. Municipal and hospital software already supplies those controls; more capable models increase the value of that layer rather than replace it. Constellation Software, Topicus and Sygnity stand to benefit if vendors open their systems to AI and build the controls themselves; otherwise another provider could take that role. x.comÂ
Horizontal SaaS tools such as HubSpot, Atlassian and Intuit will be disrupted as companies build their own replacements with AI. Per @CJ0pp3l, quoting one of Constellation Software's AI leads, HubSpot, Jira, Mailchimp and Zendesk have been replaced with AI-built systems and agents, and only vertical software with strong systems of record and deep workflow integration will grow with AI. The market also sold vertical names like Constellation and Topicus, which hold deep platform data. x.comÂ
AI has erased engineering complexity as a SaaS moat, so software survives only with compliance or data lock-in. Tyler Technologies, Veeva and Guidewire are anchored in government, pharma and insurance rules, where leaving means a compliance audit; Veeva's revenue rose 16% while its stock fell 25%. Palantir's ontology locks in customer data. Salesforce, Workday, Adobe and ServiceNow are seat-based with neither moat, and BlackLine and nCino, though regulated, never went AI-native. x.comÂ
The death of software was greatly exaggerated: companies are building AI into their own products and making them more valuable, so major platforms like ServiceNow, Salesforce and CrowdStrike aren't going away. Smaller niche players may struggle, but the market may have been far too bearish on software, and Anthropic's IPO won't change that. From their 2026 lows, ServiceNow is up 84%, Salesforce 83% and CrowdStrike 173%. x.comÂ
Constellation Software and Topicus are being wrongly lumped in with AI software fears, setting them up to rerate back toward a 3% free cash flow yield once things clear. They adapt, execute and take advantage of deals, with record capital deployments, and moats in vertical market software are shifting rather than disappearing; much of software can adapt with the right culture. A post the author replies to counters that new competitors have beaten Harris and Tyler in govtech. x.com x.com x.comÂ
Software looks like a group that can lead the market higher, with many names from Palantir and ServiceNow to Zeta and MongoDB moving from late Stage 4 or Stage 1 into early Stage 2 uptrends. Sentiment is at an all-time low on fears that AI agents and chatbots will replace SaaS. AI will disrupt some areas, but many software businesses are using it to grow revenue, ship faster and expand operating leverage, and will thrive. The charts will separate survivors from the dead. x.com x.comÂ
Software stocks probably have a floor as results challenge fears that AI agents will displace them. Since the June 22 momentum unwind, IGV is up 25% and the SOX index down 22%. Atlassian and Salesforce jumped on solid results, plus an Anthropic deal for Salesforce, and possible Silver Lake interest lifted Workday. A new bullish twist says agents will use software tools 10-100x more than humans. Whether fundamentals back the rally is still open; a likely Fed hike and weak September are risks. … Show more
SaaS is alive: AI is not replacing entrenched enterprise platforms such as Palantir, Microsoft, ServiceNow, Shopify, Datadog, Salesforce, Snowflake, AppLovin, MongoDB and Zeta. Switching costs and risks are too high, and no credible CTO will swap ServiceNow for a stitched-together AI replacement. Using AI themselves should expand margins by cutting headcount bloat and lifting revenue through AI features. ServiceNow has 600+ customers with ACV over $5M, up 22%, and rose 23% in a week. x.comÂ
The SaaSpocalypse narrative makes less and less sense for Salesforce, ServiceNow and Palantir, because enterprises will deploy AI agents that use software tools rather than build their own software. Jensen Huang says agents won't replace tools but will use them, and NVIDIA has deployed so many agents that its tool usage is actually increasing. x.comÂ
The rally in US software stocks is really long in the tooth, if anyone is still left who believes AI alternatives run by one- or two-person shops can cannibalize a lot of software. x.comÂ
