Can Software Survive AI?

Bullish:

• $CRWD - CrowdStrike has built a defensible moat through 10+ years of data collection, human-in-the-loop reinforcement learning, and domain expertise that creates competitive advantages difficult for new entrants to replicate.

  • “If you think about the cybersecurity space as an example, a company like CrowdStrike, they're actually collecting data on endpoints. What is an endpoint? It's a mobile phone. It's a laptop. It's a server. And when they collect that data, they actually have human in the loop doing reinforcement learning and infusing threat intelligence, threat data, and their own tradescraft into being able to label that data for cyber attacks. CrowdStrike's been doing that for ten plus years now.”

    Gabriela·2:58

  • “So the data set they have and the domain experience in the context that they have actually becomes really important.”

    Gabriela·3:25

  • “As companies like CrowdStrike and Palo Alto have leaned into M and A, their platforms have actually gotten stronger. Their cost of customer acquisition has gone down.”

    Gabriela·13:18
• $CRM - Salesforce is actively adapting to AI disruption through aggressive M&A strategy and has the balance sheet strength to acquire top AI companies while integrating them into their platform.

  • “Salesforce has actually made north of 10 acquisitions in the last twelve months and fit them into your road map.”

    Gabriela·12:43

  • “Salesforce has to demonstrate that they can get a better outcome using AgentForce.”

    Gabriela·4:02

  • “These are some of the best application software companies from the last decade. I'm really excited to see what they do from an m and a and organic innovation standpoint as well.”

    Gabriela·7:58
• $MSFT - Microsoft is positioned as one of the best application software companies with strong potential to leverage M&A and organic innovation to maintain competitive advantages in the AI era.

  • “Similarly, Microsoft with Copilot, they need to prove that Microsoft Copilot can give you more enhancements to your Excel usage with an AI agent than simply using a tool that plugs in over the top like Anthropic Cowork.”

    Gabriela·4:06

  • “These are some of the best application software companies from the last decade. I'm really excited to see what they do from an m and a and organic innovation standpoint as well.”

    Gabriela·7:58
• $PANW - Palo Alto Networks has successfully strengthened its platform and reduced customer acquisition costs through strategic M&A in the cybersecurity space.

  • “As companies like CrowdStrike and Palo Alto have leaned into M and A, their platforms have actually gotten stronger. Their cost of customer acquisition has gone down.”

    Gabriela·13:18

Bearish:

• $SOFTWARE - Software sector faces existential risk from AI disruption with key metrics deteriorating for 4 years, increased competition from AI-native startups, and fundamental challenges to existing business models.

  • “Investors have been concerned about AI posing an existential risk to the software industry, leading to profound sell offs in software stocks this year.”

    Allison·0:09

  • “And those metrics have actually been deteriorating for four years now.”

    Gabriela·8:03

  • “The short answer is yes. And part of this is also tied to scarcity of growth, where back in 2020 and 2021, the median company in this space was growing north of 20%. That number is much closer to 10% today.”

    Gabriela·10:24

  • “And then you had a number of announcements from Anthropic, OpenAI, some of the other competitors that suggested that competition was gonna go up.”

    Gabriela·2:19
• $OKTA - Okta exemplifies software companies struggling with profitability and quality of earnings issues, having to dramatically restructure from 0% to 20% free cash flow margins under investor pressure.

  • “You have assets like Okta that went from 0% free cash flow margin to closer to 20% free cash flow margin in eighteen months.”

    Gabriela·10:57

  • “We don't like the stock based compensation dilution that's impacting your quality of earnings.”

    Gabriela·11:11