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Feb 11
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SHORT
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Citrini
Substack author, Citrini Research
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Software companies, particularly Vertical SaaS, digital advertising platforms, and portions of fintech, are experiencing an "AI Disruption Discount." Their high historical valuations (e.g., 30x revenue multiples) are being repriced due to the threat of agentic AI posing existential challenges to their business models, questioning the durability of moats like high switching costs and sticky UX. The market's uncertainty regarding AI's impact on software moats is leading to a sustained re-evaluation and downward pressure on valuations. This repricing is driven by the *threat* of AI, not just its actual impact, suggesting further downside as investors grapple with unknown future competitive landscapes. The software sector, particularly segments vulnerable to AI disruption, faces continued valuation compression and underperformance as capital rotates to more resilient "atoms" plays. Investors should avoid or short companies in these segments lacking clear, AI-proof moats. AI's impact on these sectors proves less disruptive than anticipated, incumbents successfully integrate AI to strengthen their moats, or a broader market rally lifts all boats regardless of fundamental shifts. |
Citrini Research
Atoms vs Bits
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