Software companies once commanded premium valuations due to high profit margins, low capital requirements and large growth runways. Artificial intelligence has generated new euphoria while also prompting investors to fear disruption of traditional software roles, including CRM and back-office code. Major incumbents such as Salesforce, Adobe and ServiceNow have fallen at least 17%, shedding roughly $160 billion combined, and investors pulled money from the software and services sector for two consecutive months through June. A Morgan Stanley basket of SaaS stocks is down over 6% this year versus an 11% Nasdaq 100 gain. Microsoft, Oracle and Palantir are outperforming amid perceptions they are aggressively deploying AI.
For years, software companies were the toast of Wall Street. High profit margins, low capital requirements and vast runway for growth prompted the venture capitalist Marc Andreessen in 2011 to famously declare software is eating the world. Fourteen years later, artificial intelligence is inspiring similar euphoria and some investors are preparing for a hefty slice of the software industry to
Investors pulled money from the software and services sector for two consecutive months through June after just one monthly drawdown in the prior 18, according to data from EPFR. A Morgan Stanley basket of software-as-service stocks has fallen more than 6% this year, compared with an 11% advance for the tech-heavy Nasdaq 100. The bank doesn't disclose the group's components, but Asana Inc., Hubspot
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