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Michael Luke: Milford Asset Management expert on software stocks plunging · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk SEDB. Follow
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  Speaker 2: Milford Asset Management Luke. Michael Luke is with US high Michael.
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  Speaker 3: Hey ever, how's it going you?
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  Speaker 2: Very good?
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  Speaker 3: Thank you?
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  Speaker 2: Now, see the software shares have been hammered overnight in
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  Speaker 2: the US and then locally today. What's been going on?
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  Speaker 3: Yeah, it's been a tough day and a month early
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  Speaker 3: for the software sector. Now the falls today follow and Froperk,
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  Speaker 3: the company behind the AI model, Claud releasing new AI tools,
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  Speaker 3: including a legal plug and aimed at automating some legal work.
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  Speaker 3: This saw companies like Thompson Reuters, which is a major
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  Speaker 3: legal software provider, fall fifteen percent overnight. All other software
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  Speaker 3: companies like Salesforce selves foul seven percent, and locally, we
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  Speaker 3: weren't spared either of zero share price falling fifteen percent today.
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  Speaker 3: The share price of many of these software companies have
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  Speaker 3: now fallen up to forty percent over the past few months,
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  Speaker 3: which is a pretty staggering move.
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  Speaker 2: Really, why is it that the software companies have fallen
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  Speaker 2: so much? Reas because I thought AI was supposed to
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  Speaker 2: be good for these businesses.
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  Speaker 3: Yeah, that's a really interesting shift that we've seen in
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  Speaker 3: and investor sentiments. Where last year many of these software
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  Speaker 3: companies were actually meant to be AI beneficiaries, using AI
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  Speaker 3: to make writing code cheaper as well as selling new
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  Speaker 3: features to their customers. Well, now they're directly in the
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  Speaker 3: firing line where there's a big growing debate over whether
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  Speaker 3: AI coding assistance likechlored code will actually disrupt software and
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  Speaker 3: actually enable new competitors, including potentially allowing companies to write
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  Speaker 3: their own software internally instead of buying it from existing providers.
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  Speaker 3: So the narrative is completely flipped from software companies being
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  Speaker 3: a beneficiary to now being potential victims.
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  Speaker 2: Do you think AI will actually disrupt these software businesses?
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  Speaker 3: Lurk Well, I think a big part of the reason
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  Speaker 3: these software companies have fallen so much is that it's
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  Speaker 3: actually a really hard narrative to complete completely disprove, where
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  Speaker 3: the question is how good are these AI tools going
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  Speaker 3: to be in the future, and protecting the future is hard. Now.
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  Speaker 3: Some of these software companies were also trading at very
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  Speaker 3: high valuations previously, so they will be impacted by changes
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  Speaker 3: and long term growth assumptions. But there are a few
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  Speaker 3: things that are aware. Remembering, Firstly, when you're buying software
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  Speaker 3: from the likes of a zero or Salesforce, you're not
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  Speaker 3: just buying the code. You're getting a company to make
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  Speaker 3: it run for you, stay updated, maintain high security, and
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  Speaker 3: often deliver a number of data integrations and compliance features
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  Speaker 3: which can be really difficult to replicate. Secondly, it can
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  Speaker 3: also be very painful to switch software providers when it
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  Speaker 3: comes to moving all your data, your workflows, your customer integrations,
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  Speaker 3: as well as learning to use the new system. So
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  Speaker 3: there has to be a really compelling reason to shift
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  Speaker 3: if you're existing software is working pretty well and not
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  Speaker 3: breaking the bank. That said, these tools like Claude will
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  Speaker 3: keep getting better and could enable more competition over time.
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  Speaker 2: Now, is this do you think than a buying opportunity?
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  Speaker 3: That's the big question. And then we have seen a
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  Speaker 3: big reaction and likely a very big overreaction for a
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  Speaker 3: number of companies out there. So there will be some
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  Speaker 3: great opportunities, but investors there need to be selective as
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  Speaker 3: there likely will be some companies disrupted, even if it's
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  Speaker 3: just as slowdown and growth, and we've seen pretty large
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  Speaker 3: negative share price reactions to recent software company results. Like
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  Speaker 3: Microsoft and SAP with growth missed investor expectations. So it's
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  Speaker 3: all about finding the right investment. Where the shear marketers
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  Speaker 3: may be overreacted to the risks of AI disruption, We're
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  Speaker 3: trying to avoid those companies where they actually are really risks,
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  Speaker 3: and maybe those risks are still underpriced.
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  Speaker 2: Michael, it's good to talk to you. Thanks for running
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  Speaker 2: us through at Michael Luke, NOFIT Asset Management.
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