Comment by DaedalusII
11 days ago
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.
AWS is not a software company either, it is a capital intensive computing infrastructure company. NVIDIA as well is a capital intensive computer hardware company.
Just because software plays a role, doesn't make them software companies. It is like saying all companies are "electrical companies" because they require electricity to operate.
3 replies →
I’ve heard the same about Nvidia, quite a few times, but have never really understood it.
I don’t suppose you know a good “for dummies” explanation of why CUDA is such an insurmountable moat for them?
Like, what is it about that software that AMD can’t produce for their own hardware, or for a most important subset, with these $1T market stakes?
8 replies →
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
> but at least my flawed epistemology reveals my humanity
Plenty of AIs have flawed epistemology. But nice try.
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~
Hes not admitting his crimes, hes bragging!
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