VALUE: After Hours (S08 E04): Will AI Kill Software Stocks? Why Value Investors Aren’t Convinced

During their recent episode, Taylor, Carlisle, and Unemployed Value Degen (Stephen Farrington) discussed Will AI Kill Software Stocks? Why Value Investors Aren’t Convinced. Here’s an excerpt from the episode:

[Steve] Yeah. Well, there is a narrative that AI is going to eat all software. And I think the narrative is overdone.

I think we’re going to hit the limits of what AI can do. You know, I don’t think that the technologist religion is accurate, that they’re going to make these, you know, super gods that are going to destroy all scarcity. I think we’re going to hit a limit to what AI can do in however many years.

And also, I think there’s more to a software company than just the software. You know, there’s business relationships, there’s switching costs, there’s ancillary services. So my original thesis was that it would be easier for existing businesses to adopt AI than it would be for AI startups to come in and eat those businesses.

And I think there’s going to be, you know, there’s going to be some value opportunities in software, but the knife is still falling. So I’m not trying to catch it today, because that knife is going to… Because, I mean, I saw a company that was down 60% and it’s still trading at eight times price to sales.

And it’s down 60%. And it’s still eight times price to sales.

[Tobias] It used to be expensive. That’s a big discount now. That’s a 20% discount.

[Steve] Yeah. And so I’m still finding value in other places. I’m still finding things that I think are going to have huge tailwinds and they’re trading at, you know, 0.3 times price to sales. So there’s still things out there other than software to buy, but maybe this time next year, I’ll be buying software.

[Tobias] We’ll pursue what you think is interesting to buy in a moment. But you and I got tagged in an interesting chart today that showed…

[Jake] It wasn’t Epstein related, was it?

[Tobias] Sorry. Just completely derailed. This was looking at ISM, which is the Purchasing Managers Manufacturing Index.When that’s above 50, that’s good for small value. When that’s below 50, that’s bad for small value. It spent three years below 50, which sort of indicates retrenchment in that manufacturing in the States and above 50 indicates growth.

And so that was kind of an interesting chart. Is that a fair characterisation of it? Do you think?

Yeah.

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