Latest / Best of Business / Sam Dickie: Fisher Funds expert on what the 'SaaSpocalypse' means for software stocks

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Sam Dickie: Fisher Funds expert on what the 'SaaSpocalypse' means for software stocks · Best of Business

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  Speaker 1: You're listening to a podcast from news Talk SEDB. Follow
• 0:12
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  Speaker 2: There's a word doing the rounds and markets this year
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  Speaker 2: that sounds like a horror film. The saraspocalypse. Up to
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  Speaker 2: true trillion dollars wiped off software companies, then they recently
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  Speaker 2: came roaring back. Is the spouse for real or just
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  Speaker 2: another dead gap bound? Sam Dicky from Fisher Funds is
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  Speaker 2: with us a Sam.
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  Speaker 3: Hey you that right?
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  Speaker 1: So?
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  Speaker 2: What on earth is a SARS spocalypse?
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  Speaker 3: Yes, sas apocalypse. It's someone coined after the software sector
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  Speaker 3: went into full scale meltdown earlier this year. So sas
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  Speaker 3: SaaS stands first for software as a service, software you
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  Speaker 3: rent rather than onn and for twenty years these were
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  Speaker 3: the best business models on earth. So subscription fees were
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  Speaker 3: paid every month forever. Profit margins were seventy eighty ninety
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  Speaker 3: percent in some cases, which was way higher than the
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  Speaker 3: average company. And into this year, so software prices have
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  Speaker 3: been weak for a while, but on thirtieth of January
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  Speaker 3: of this year they fell off a cliff. So Anthropic
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  Speaker 3: released plugins letting its ai do multi step office work,
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  Speaker 3: legal finance, sales without the need for software in between.
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  Speaker 3: And the maths is, the simple maths is pretty brutal.
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  Speaker 3: So if one person with AI does the work of five,
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  Speaker 3: you canceled four software subscriptions. So by third of February,
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  Speaker 3: forty eight hours later, about half a trillion dollars have
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  Speaker 3: been wiped off the SaaS sector or the software sector.
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  Speaker 2: Now why do the market believe it?
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  Speaker 3: Well, I think, like any good story, it was partly true.
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  Speaker 3: So some software companies that are not super necessary, they're
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  Speaker 3: not super part of our everyday life, will be disrupted
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  Speaker 3: by AI. They will go to God, they'll go to zero.
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  Speaker 3: And on top of that, after twenty golden years, the
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  Speaker 3: sector was trading at very expensive valuations. But here's the thing,
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  Speaker 3: and this is something you and I've spoken about several times.
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  Speaker 3: This is the other side of the coin of that
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  Speaker 3: very narrow, very indiscriminate rally where only a few handfuls
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  Speaker 3: of AI winners we're driving all of the markets going.
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  Speaker 3: So remember, you were either an anointed AI winner, or
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  Speaker 3: you were lucky enough to be unaffected by AI, or
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  Speaker 3: you were considered an AI loser. And software has been
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  Speaker 3: the poster child for that.
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  Speaker 2: Yeah, Okay, so they bounced really hard. Is it over?
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  Speaker 3: Well, that's right that the biggest software player of all, Microsoft,
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  Speaker 3: on thirtieth of July had had a cracking result, jumped
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  Speaker 3: fifteen per cent a day, adding about half a trillion
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  Speaker 3: dollars to its market cap, which is the largest single
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  Speaker 3: day game in market history. Not only was their cloud
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  Speaker 3: business super strong, but the sales of their office suite
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  Speaker 3: of software was very strong, good old Microsoft Office, and
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  Speaker 3: the AI copilots they infuse into that software was also
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  Speaker 3: very strong. The other thing to consider was how extremely
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  Speaker 3: bearish the setup was. So hedge funds, for example, piled
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  Speaker 3: into one trade long AI winners short software as a
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  Speaker 3: funding source, and and when Microsoft delivered that, the trade
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  Speaker 3: blew up. So the software sector was up about forty
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  Speaker 3: percent in a month, which is as unprecedented in its history.
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  Speaker 3: As to whether this is a cap bounce or the
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  Speaker 3: beginning of a sustained rally, I just think we have
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  Speaker 3: to wait and see.
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  Speaker 2: What does it mean for investors.
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  Speaker 3: Well, it means the extreme fear and panic valuation discount
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  Speaker 3: has gone. So there was some extremely cheap companies out there,
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  Speaker 3: but so is the valuation premium of the past two decades.
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  Speaker 3: So I think the market will be more selective from
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  Speaker 3: now and instead of arbitrarily punishing or rewarding all of
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  Speaker 3: the software names, the hundreds of software names that are
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  Speaker 3: listed as one, they will sort the winners from the losers.
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  Speaker 3: So if you do own software companies, you ask yourselves,
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  Speaker 3: do they have an impregnable impregnable mode? Do they use
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  Speaker 3: proprietary data it's hard to replicate by aire they deeply
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  Speaker 3: embedded in corporate's day to day workflow and hard to
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  Speaker 3: rip out. And do they themselves have the scale and
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  Speaker 3: talent to develop their own AI offerings internally to play
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  Speaker 3: offense and ward off anthropic and others.
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  Speaker 2: Yeah, okay, Sam, listen, It's always interesting to talk to you,
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  Speaker 2: and I appreciate that very much, as Sam Dickey of
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  Speaker 2: Fisher Funds.
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