After listening to $NOW earnings call, my conviction in most of my software exposure has been shaken. I’m open to people debating and maybe changing my mind, so if you disagree please comment below. Again try to play devil’s advocate with your own arguments, these are just my initial thoughts, I’m not looking for snarky arrogant comments, just a genuine discussion.
I do believe that there’s a genuine need for governance, observability and AI threat detection layers as agentic AI takes over. As $NOW CEO pointed out, spending forecasts on AI software is going to grow 53% this year, which is 17% faster than AI hardware. On paper this feels like an amazing opportunity for investing in those software layers that make it easier for enterprises to adopt and control AI agents.
The problem that I think got reiterated in $NOW’s earnings call is that I don’t see how their product sets can be differentiated over the next 5-10 years. It’s really hard cause I believe in what they have to offer, but I have a difficult time understanding how individual companies in this space don’t end up just competing with better products, which would probably lead to some level of commoditization of those services.
And the problem is I do see competition getting incrementally better and then the question becomes will there be enough TAM available to the companies operating in this space? Will the incumbents steal enough market share away with competitive pricing that it becomes impossible for companies like $NOW to sustain their current market cap?
I don’t think this concern was addressed in the call today. In fact, with the commentary I believe it was reiterated. I’m still doing more research and thinking on this, but if this is true then we have to ask ourselves what forward multiples do these companies deserve? Do we bid them up for next 3-5 years worth of possible high margins only for them to lose it after that?
I don’t know the answer. I’d love to listen to your opinions on this. Again comment below.