Thierry from arvy
CFA, Co-Founder & CIO of arvy, Quality Investing
Software stocks are losing their scarcity premium because the price of intelligence is collapsing faster than any technology on record. PC prices took 15 years to fall 90%; LLM prices did it in under three, and quality-adjusted intelligence became nearly free within 30 months. Every SaaS multiple was a bet that writing software stays expensive, and that bet is unwinding five times faster than in the PC era. Companies selling intelligence get squeezed, while those applying it gain. x.comÂ
Software priced by the seat is set to be repriced as the unit of value shifts from human time to completed work. Per the FT, McKinsey clients are pushing it to charge for results rather than hours; Fin charges 99 cents per resolved case and Salesforce now offers pay-per-task pricing. Markets noticed early: Adobe's FCF yield rose from 2% to 10% in two years as earnings grew, and Chris Hohn sold $8B of Microsoft. Like the Nifty Fifty meeting inflation, per-seat SaaS is meeting AI agents. x.com x.comÂ
Software companies face a multi-year repricing because AI has removed the scarcity that made software valuable. For 20 years building software required engineers, letting SaaS firms charge monthly fees forever; when anyone can build a working product in a weekend with Claude, software stops being the moat. Atlassian is down 75%, HubSpot 69% and Figma 86%, and layoffs show headcount no longer scales with output. Survivors will be those with distribution, data and trust underneath. x.comÂ
Software stocks keep getting sold off even as software revenues keep climbing. x.comÂ
Software stocks look set to benefit as the market signals that open-weight models will help software and that AI extinction risk was overblown, with AI instead a net positive for growth and margins in coming years. The cloud software ETF is becoming one of the best-looking charts in the market and is close to clearing $37 resistance and a volume shelf. x.comÂ
AI usage outstripping compute supply for the foreseeable future supports semiconductor demand despite cheaper tokens. Token prices fell about 90% in roughly three months, yet usage rose by more than that drop, so compute pricing keeps rising. AI revenue extends beyond LLM providers, including Meta, Google, Salesforce and ServiceNow. On- and off-balance-sheet debt is a risk; an AI bubble is likely eventually, but none is visible now. x.comÂ
ServiceNow's unexpected expense surge makes its rich valuation more vulnerable in a struggling software sector. Revenue rose 21%, but spending drove an EPS miss and one quarter of guided cRPO deceleration; wider market conditions could hurt near term. The 20% selloff looks excessive, and few software companies should benefit as much from AI. Management could deliver over 3-5 years, though the stock is only close to a buy again now; below $100 looks good for the long term. x.com x.com x.com x.comÂ
SaaS will have its time in the sun again, and now, while it is still hated, is the time to pick favorites and build positions. Bearish sector narratives don't last forever, and the view that all SaaS is being disrupted should ease somewhat this summer, though multiples may not return to prior levels. Some SaaS names have little moat against Anthropic and peers, but many, especially cybersecurity and Palantir, are strengthened by the agentic push. x.com x.com x.comÂ
AI embedded throughout software could bring huge future token spend to Amazon and Alphabet, whose AWS and GCP clouds host software builders and offer AI platforms. Ramp data show VC-backed firms spend 10 times more per employee on AI monthly than PE-owned and other firms, a possible leading indicator of software using more tokens relative to people. VC-driven demand is vulnerable to capital-cycle swings, but longer term incumbent software may become AI-native or be replaced. x.comÂ
US software is the category most exposed to AI app builders like Replit, with $100K CRMs getting rebuilt for $200, which puts it on the do-not-own list. The trade is energy and bottleneck infrastructure, not software. x.comÂ
The software selloff looks overdone, as AI seems to be creating dispersion rather than killing software. All 13 S&P 500 software companies that have reported so far beat EPS estimates, and software stocks are up about 40% from their April lows. x.comÂ
Software stocks are not a buy, and the warning signs are everywhere. Per Laura Bratton's report, ServiceNow has blown through its full-year budget for Anthropic's AI coding tools within the first few months of 2026, as Uber's CTO said his company had too; ServiceNow's CIO called it a really hard problem. x.com x.comÂ
