Comment by tucnak
15 days ago
They always say it's about "AI," but it never turns out to be about AI. I wonder what's it about this time?
15 days ago
They always say it's about "AI," but it never turns out to be about AI. I wonder what's it about this time?
wall street analysts are starting to realise that software companies shouldnt trade on a P/E of 300.
DocuSign is currently valued at 30 times its annual earnings. Adobe is currently 16. Amazon is 28 -- has been as high as 50 recently. NVDA is 44.
Investors are basically starting to realise that enterprise are not going to subscribe to software like DocuSign for 50 years. They'll probably just move to odoo or zohosign or something and save a lot of money. So its probably a better bet to put that capital into something like Nvidia or Tesla or whatever. it also looks like the US Fed isn't going to cut rates, so capital is getting more expensive.
Of course, if you are a CEO its great to blame all this on AI and then tell your investors you are increasing AI in your business (see: salesforce whose stock price is down 42% in a year and is now trading at 25x earnings)
> software companies shouldnt trade on a P/E of 300
You are playing pretty fast and loose with your definition of a "software company" when you include Amazon and NVIDIA in your list. Amazon is many things but it is not a "software company" and neither is "NVIDIA".
I actually don’t even think it’s a IaaS company. I mean it is, but Amazon seems to always excel at operations: whether it’s organizing a retail business, operating a logistics company, or managing a hyperscaler, it just seems like its real secret sauce is running ops.
(Which makes sense because all of their end user products suck)
50% of amazon operating profit is from AWS. NVIDIA's GPUs aren't really that much better than AMD if it weren't for CUDA.
Software company is a pretty good description for both.
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youre right, i should say tech company. but at least my flawed epistemology reveals my humanity
although one could argue disingenuously that nvda is a software company because the product they ultimately manufacture is a bunch of blueprints they email to tsmc or samsung who then actually make the chips
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I've always found it confusing how run of the mill SaaS trades at multiples assuming decades of doing business. The amount of change in software businesses has been massive and being able to run a successful software business even for 15 years from 2010-2025 requires a great deal of strategy and foresight and more likely than not that's not enough. Considering how these dynamics have been accelerating as technology accelerates it just seemed so off that the market was landing on a 20-30x multiples for software businesses that don't have much moat (e.g. swathes of B2B CRUD apps).
Investor analyst looks at earnings growth and determines Customer Acquisition Cost (CAC) and Customer Acquisition Cost Payback Period (CACPP). They determine that ABC Software Corporation has no marginal manufacturing cost because it makes software that it sells online, so if it invested 90% of its profit margin into marketing it could grow its ARR by 140% a year. Then they extrapolate that for 30 years and say ok the NPV of 30 years of 140% ARR on current CAC, etc etc...
If everyone in the industry benchmarks on more or less the same multiples, it becomes a good idea to buy any b2b crud saas trading at 10x earnings because if the big boys see it they'll probably bid it up to 30x
the other classic move is to take a business which really isn't even a new technology, like revolut, and call it a tech business. now suddenly a bank can trade on a 50x earnings multiple instead of 15x like say a bank. many such cases~
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Why would you put more money into Nvidia or Tesla right now? Don't you think they are priced in already?
we are only examining the valuation metrics here, not comparing the companies themselves as investments.
you could decide that if you are a very large company, building software internally to replace a SaaS product is a path forward. Or replacing a premium software like DocuSign with a cheap one like Zoho sign. or just building your own proprietary electronic signature app
It is however impractical for big company to start manufacturing cars or designing competitive GPUs
so the earnings of tesla and nvidia is theoretically more 'stable' than a software application company like salesforce, adobe, etc.
this analysis ignores both the size of the company, and what it does, or whether or not any one of them is a good investment
Every tech company assumed they would be the benefactors, not victims, of AI. And investors now see that without the alleged AI growth, these companies at best look like stable utilities, not high growth stocks. At worse companies look like they make highly replaceable software as software stops being a moat.
Moreover they look like large, inefficient organizations with a lot of human veto points that prevent innovation (requiring more human coordination is an anti moat now)
Was software ever a moat? Software typically only gave companies a small window of opportunity to turn a fleeting software advantage into a more resilient moat (network effects, switching costs etc.)
Yes, I would argue good (stable, fast, easy to use) software was somewhat of a moat and much harder before coding agents.
Stripe, Square, Shopify, Google, all thrived in some part because their services take a hard problem and make it easier to use. Now more people can take a hard problem and make it easier to use.
All you have to do is look around (esp 5+ years ago) and see the many many BAD, unstable, hard to use, slow, etc versions of these companies
Windows was a moat but it looks more like an anchor now.
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The collapse of the yen carry trade.
I have read that numerous places and it seems plausible but it is beyond my investing experience.
I think the new nominated Fed Chair is also a hard money advocate and is spooking USD alternatives (gold, silver, BTC, etc.) But hard money can be quite hard on the economy, so that could limit growth.
We should just blame "the willies".
Investment is all about belief. When the root cause is the willies, then we hallucinate reasons together.
Crypto and memes have demonstrated us a lot about the drives of individual investors.
Unfortunately it seems that professional investors are not that much more rational (from my limited personal experience with a small hedge fund, and from my years of looking at markets).
My favourite term has always been "taking profits" which is generated by the technical analysis (I loath that term) of looking at the prices: taking an effect and publishing a cause (trying to sound smart).
We are deeply irrational beings; often the more you go up a professional ladder the more rationalisation you see.
During unstable periods, we see lots of weird side-effects and there is a lot that doesn't seem to make sense.
Edit: a better meme could be "The use of AI by funds is destabilising markets"
Disclaimer: I am not a professional investor. I am a cynic.
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Not saying you're wrong, necessarily, but as I type this the Dow is at 49,700. Would you expect the collapse of the yen carry trade to cause the Dow to collapse as well? Or is the Dow not high-growth enough for people to put yen-carry money into it?
> Would you expect the collapse of the yen carry trade to cause the Dow to collapse as well?
USD devalued ~10% last year, so some of the losses are already priced into the DJI. When you account for that and sprinkle in ~3% inflation, it has lost value despite being up ~11% in the last year.
Anecdotally, read somewhere that delivery people are going idle. The Orange One wrecked everything with tariffs, and the ripple of destruction is slowly taking its course. That's before we take into account massive outflows of cheap labor and fired government workers.