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Why software stocks are getting pummelled

economist.com

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Re: Why software stocks are getting pummelled

#201

Post by yuucc »

roncesvalles wrote: post #195
margorczynski wrote: post #171

Earlier quoted context omitted.

I would say that MS here is undervalued. They do not offer some small software package for a given business problem but the whole shebang - the OS, mail, calendar, office suite, IAM, cloud, etc. + support for each and the whole integration. You can't realistically replace that with some LLM solution (in the near-term at least) and they can use the AIs to reduce their costs which is mostly people.

Microsoft has consistently proven over the last five years that they have zero ability to execute. It's an astounding failure after failure to do anything right.

All my Microsoft friends constantly berate the state of their hiring pipelines. Sprinkle on a paltry comp and this is hardly surprising.

Re: Why software stocks are getting pummelled

#202

Post by nayroclade »

lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

If AI can code, why do you think it cannot handle building, testing, debugging, securing, monitoring, supporting, incident handling, and so on?

Consider incident handling. What if your AI sets up monitoring that detects errors or outages, wakes up an agent, gives it the problem context, then sets it to work so it can debug the issue, produce a fix, then deploy it? You now have an end-to-end system that works 24/7. Many issues will probably be resolved before you've even noticed them.

If your response is, AIs won't ever be smart or capable enough to do this as well as humans, how has that same prediction worked out for coding?

The next generation of AI "coding" tools will essentially be SaaS companies in a box. Agents will code the app, but they'll also test it, debug it, support it, etc. And this will happen in months, not years.

Re: Why software stocks are getting pummelled

#203

Post by highfrequency »

> Of course, ai will continue to improve. But it is also likely to get more expensive…Microsoft’s share price took a beating last week as investors winced at its enormous spending on the data centres underpinning the technology. Eventually these companies will need to demonstrate a return on all that investment, which is bound to mean higher prices.

That’s not how it works, and I’m surprised this fallacy made it into the Economist.

Commodity producers don’t get to choose the price they charge by wishful thinking and aspirational margins on their sunk costs. Variable cost determines price. If all the cloud companies spend trillions on GPUs, GPU rental price (and model inference cost) will continue going down.

Indeed, cheaper and cheaper AI for the same level of performance has been even more consistent empirically than improvement in frontier model performance.

Re: Why software stocks are getting pummelled

#204

Post by thfuran »

lmm wrote: post #169
graeme wrote: post #167

Earlier quoted context omitted.

The problem with this reasoning is it requires assuming that companies do things for no reason. However possible it was to do this work in the past, it is now much easier to do it. When something is easier it happens more often. No one is arguing it was impossible to do before. There's a lot of complexity and management attention and testing and programmer costs involved in building something in house such that you n…

> There's a lot of complexity and management attention and testing and programmer costs involved in building something in house such that you need a very obvious ROI before you attempt it especially since in house efforts can fail. I wonder how much of the benefit of AI is just companies permitting it to bypass their process overhead. (And how many will soon be discovering why that process overhead was there)

Sure, there's a lot of process that is entirely justified, but there's also a whole lot of process that exists for reasons that are no longer relevant or simply because there are a lot more people whose job it is to make process than whose job it is to stop people from making too much process.

Re: Why software stocks are getting pummelled

#205

Post by fzeroracer »

nayroclade wrote: post #202
lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

If AI can code, why do you think it cannot handle building, testing, debugging, securing, monitoring, supporting, incident handling, and so on? Consider incident handling. What if your AI sets up monitoring that detects errors or outages, wakes up an agent, gives it the problem context, then sets it to work so it can debug the issue, produce a fix, then deploy it? You now have an end-to-end system that works 24/7. Ma…

> Consider incident handling. What if your AI sets up monitoring that detects errors or outages, wakes up an agent, gives it the problem context, then sets it to work so it can debug the issue, produce a fix, then deploy it? You now have an end-to-end system that works 24/7. Many issues will probably be resolved before you've even noticed them.

Have you ever been actually involved in trying to fix an error or outage? Like actually on an on-call rotation where you had to deal with reported issues?

Re: Why software stocks are getting pummelled

#206

Post by alephnerd »

paxys wrote: post #133

Is it AI or just the market realizing that some of these companies were ridiculously overvalued to begin with. Here are the p/e ratios of companies mentioned in the article, after the said "pummeling": * ServiceNow - 70.66 * SAP - 28.70 * Salesforce - 28.15 * Workday - 73.16 * Microsoft - 26.53 So they range from "a bit high" to "still completely bonkers".

ServiceNow isn't really an "AI" company - they're one of the silent ITSM and Security companies that are nigh impossible to tear out, and are making silent moves into the OT Security space.

And that makes their "AI" pivot much more sustainable imo - their are already such a giant from a cashflow perspective that if some sort of AI valuation shakeup occurs, they have the drypowder to execute on M&A.

SNOW's closest comparables are CROWD and PANW - basically an Arora style platformization play.

Re: Why software stocks are getting pummelled

#207

Post by bandrami »

rstuart4133 wrote: post #146
lateforwork wrote: post #6

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

> > The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. If that's their fear they don't know much how your typical big businesses functions. You've dealt with a large, consumer bank? Many of them still run on IBM mainframes. The web front end is driven by pushing buttons and screen scraping 3270 terminal emulators. You would think a bank with all it's resource…

Banks don't write software for the same reason that software companies don't store their own money

Re: Why software stocks are getting pummelled

#208

Post by bobsmooth »

marcus_holmes wrote: post #190
falloutx wrote: post #81

Earlier quoted context omitted.

Everyone says that but I don't see anyone cooking up the next photoshop and selling it at $3/month. Why are we not seeing more options of every tool? Most Saas companies are sales companies at their core rather than software companies. And those sales people are so good that they can sell a todo list for millions.

> I don't see anyone cooking up the next photoshop and selling it at $3/month. That's not the situation we're talking about though. It's someone saying "hmm, I need to edit this picture. Can I get ChatGPT to do it?" where 3 years ago they would have had to buy Photoshop and learn how to use it. Similarly, if they need a tool to batch-convert a thousand images, they're getting an LLM to construct the specific tool the…

>they're getting an LLM to construct the specific tool they need in a couple of hours and then running that

This is something I really hope takes off for the common person. ChatGPT is perfect for bespoke little programs that do one thing and can be discarded after use.

Re: Why software stocks are getting pummelled

#209

Post by bandrami »

falloutx wrote: post #81
SimianSci wrote: post #50

The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems. SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was h…

Everyone says that but I don't see anyone cooking up the next photoshop and selling it at $3/month. Why are we not seeing more options of every tool? Most Saas companies are sales companies at their core rather than software companies. And those sales people are so good that they can sell a todo list for millions.

"Where is the output?" remains the giant elephant in the AI room. You can tell because people get mad when you ask that.

Re: Why software stocks are getting pummelled

#210

Post by datsci_est_2015 »

phatfish wrote: post #143
gmueckl wrote: post #114

Earlier quoted context omitted.

I don't find this surprising. Code and data models encode the results of accumulated business decisions, but nothing about the decision making process or rationale. Most of the time, this information is stored only in people's heads, so any automated tool is necessary blind.

This captures succinctly the one of the key issues with (current) AI actually solving real problems outside of small "sandboxes" where it has all the information. When an AI can email/message all the key people that have the institutional knowledge, ask them the right discovery questions (probably in a few rounds and working out which bits are human "hallucinations" that don't make sense). Collect that information an…

The AI will also have to be trained to be diplomatic and maybe even cunning, because, as I can personally attest, answering questions from an AI is an extremely grating and disillusioning experience.

There are plenty of workers who refuse to answer questions from a human until it’s escalated far enough up the chain to affect their paycheck / reputation. I’m sure that the intelligence is artificial will only multiply the disdain / noncompliance.

But then maybe there will be strategies for masking from where requests are coming, like a system that anonymizes all requests for information. Even so, I feel like there would still be a way that people would ping / walk up to their colleague in meatspace and say “hey that request came from me, thanks!”

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