The death of software?

Despite the fact that AI agents and new autonomous hardware are gaining ground, software stocks (purple line) have significantly underperformed the general tech market (black line).

Other Economy Insights appSince ChatGPT launched in 2022, the Nasdaq 100 has more than doubled in value. Software actions were only down about 20% over the same period.:

Values ​​refuerzan the mensaje. Different versions of the software have been identified in minimal historical cases, either used for events or for benefits.

Investors are more interested in the traditional SaaS growth model (Software as a Serviceit is decided software as a service) you’ll only need the first one at that point:

It would be reassuring to completely ignore AI or interest types. But there is an even simpler and more inconvenient truth: the sector is maturing and structurally it is becoming more difficult to meet growth.

Data about Analysis of Avenir They cause the collapse of the effectiveness of the winds before the panic that sparked ChatGPT. In the years 2021 to 2024, companies from software that kotizan in the bag during the inversion in the winds and marketinginstead of generating fewer incremental inputs.

The era of contracting more vendors for faster growth is over, AI simply sped up the process.

However, the mayor cotizadas companies software it also relies heavily on stock-based compensation, which dilutes stocks.

On January 12th, he marked the before and after with the help of Claude Cowork of Anthropic, tools capable of navigating, editing and organizing archives with the autonomy that makes Silicon Valley companies look. This advance has disrupted an old compact of the technology sector: the idea that more software licenses are needed for more people. Now, with AI agents capable of doing the work of internal departments, the work model for the company is exposed to a customer who only wants to pay for results.

This revolution is pleasant with the conversion to giants software based simply on invisible data, while AI agents remain in control of the interface and decision summary. Historical companies like Salesforce or Adobe now face an identity crisis: either they keep their current assets until they become irrelevant, or they cannibalize their own inputs to lead this new era. Ultimately, the market has decided to reward those who offer a tool to do the work, focusing on value in this software that simply does the work for you.

However, titans like Microsoft and ServiceNow are a great opportunity for you Morningstar within a veritable maremagnum of possible gangs. Yes, that’s it the competitive winds of some damn people are really powerful.

I want to focus now on what is really relevant to my judgment to see if it is difficult to replace the software (software vertical) or easily separable (software horizontal).

Vertical software is designed specifically for one industry or market segment. This contrasts with horizontal, which is designed for use in multiple sectors.

An example software vertical is built to maintain electronic medical records that help doctors better diagnose and treat patients. This rebound capital table highlights the main differences:

Here we can see examples of businesses of both styles:

In this sense, I want to explain the joy of the market, which has been sufficiently discounted. If it is a share which only ships to a few vertical software firms: Constellation Software.

Mark Leonard founded it in Canada in 1995 with a capital of 25 million dollars. Instead of using the usual capital strategy that I can turn around and then grow the business, I created a company to buy and hold vertical software entities forever. I want to build a permanent capital vehicle. This is a special phenomenon, comparable only to Berkshire Hathaway (Warren Buffett) or Investor AB (share of the oldest family in Suezia: the Wallenbergs).

Mark was convinced that the signatures of software vertical contact with firm competitive forces, are deeply integrated into their customers’ operations. You can tailor your solutions to your needs. All these factors create extremely high and rigid exchange costs.

Revenues have historically grown at an annual average of around 25%. Since its IPO in 2006, the stock has risen more than 15,000%. From their highs last year in some cases by 50%:

Constellation Software’s success is due to a combination of unique features that make it difficult to copy in this style:

– Focus on nothing.

– Focusing on small segments for capital companies that I can manage.

– Focused on scary businesses that aren’t on anyone else’s radar.

– Sponsor-friendly reputation. They will maintain the culture and management of the company with each acquisition.

– Decentralized model: Mark delegated the cancellation decision to the signature sub-department. Rector principles are established and the central unit intervenes only if the moment of inversion exceeds the umbrella.

Ultimately, the sector faces real challenges, but panic creates opportunities. As Warren Buffett said, “Real power consists of logical feeling and observation.” In a market dominated by the narrative of AI, self-monitoring and computer analysis software vertical seems to be the best compass.