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Feb 12, 2026
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SHORT
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"We think the market is really only just starting to price in the transition from Software 1.0... to Software 2.0... What we don't think yet is priced in is the margin compression... because AI software, there are actual real marginal costs to this." The last decade of SaaS investing was based on "write once, sell infinitely" with near-zero marginal costs (90% gross margins). AI Agents require heavy compute for every action. As software companies integrate AI to stay relevant, their cost of goods sold (COGS) will skyrocket, compressing valuations that were based on 90% margins. Short incumbent software companies with high valuations that are forced to pivot to high-cost AI models. Incumbents successfully monetize AI features at a premium that outpaces compute costs. |
CNBC
Panel weighs AI disruption, margin pressure a...
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