So, what's up with these software

stocks? Why are they getting whacked so

hard, especially this year where the

share price is dropping almost every

single day? And could they really go to

zero as some people claim? Let's find

out in this video.

Our new AI tools and AI agents have

already been pressuring software stocks

last year with Salesforce and Service

Now and Adobe and even like Dualingo

down double digits last year. But this

year, the sell-off has gotten even

worse. So, for example, this year alone,

Salesforce down another 28%, in it down

34%, service now down 33%, Adobe down

another 23%, ADP down, and so and so

forth. So, what's happening? What is

scaring the living out of software

investors? Well, the main culprit is

actually Anthropic. Now, if you didn't

know, Anthropic's biggest shareholder

is, tada, Amazon, right? So, Amazon,

Nvidia, Microsoft, and Google are the

biggest shareholders of Anthropic. So,

Anthropic has an AI uh model which of

course competes with Chat GPT. In fact,

I think it's way better than ChatGpt.

use Anthropics Claude now a lot more for

my finance work rather than chat GPT

right and of course they compete with

Gemini as well but I use both I

basically use Gemini and Claude now cla

what's so special about clot basically

anthropic they released a new version of

claude called cla coowork and that

really really scared uh people who own

software companies why let's find out

why now what is claude coowork clot

coork is an auton autonomous AI agent

system. So, this is kind of like you

watch um Iron Man where um Tony Stark

had this guy called Jarvis and Jarvis

was like his AI assistant, his digital

employee and he could go in and do

everything for Tony Stark. Well, that's

Claude Co-work. It's like a Javis,

right? So, Claude Co-work functions like

a digital colleague that you can have.

And this agent has direct permission to

access your local files. You can go into

your computer, operate your browser and

execute multiple step workflows

autonomously. So for example, using

cloud co-work or any AI agentic system.

It you can use it to read, edit, move,

rename and create files in your

PowerPoint, your Excel and even your

PDFs. And when you pair with a browser

extension, it can navigate websites for

you. It can extract data for you. It can

fill up forms for you. It can book

airline tickets for you. It can research

competitors or without your guidance. It

works by itself.

So AI is no longer something you chat

with. It does stuff for you like your

personal assistant, like a digital

colleague. And it they just released a

set of 11 open-source starter plugins

that provide preconfigured workflows for

specific jobs like legal, sales,

marketing, and finance. So what does it

mean? So what it means now is that

companies literally you don't have to

hire a marketing executive or marketing

manager. They are all they can all be

done by these AI agents. No need for a

legal team in your office. AI agents act

as your legal team. You don't need a

finance manager, finance uh assistance.

All done by the gentic AI. So what

what's a fear? Well, there are two

fears. The first fear is that claude

cowwork allows anyone like you and me

with no programming background to code

any kind of software that we want in

minutes. We they call it vibe coding.

So, for example, you come in one day and

you look at your co-work and you say,

you know, I wanted to create a software

where I've got a local dashboard that

tracks my company's coffee consumption

from all these 50 spreadsheets and

display it on a web page which I can

track every day and in minutes that

software is done for you. So, the first

fear is that with this tool basically

anyone can replicate Adobe's software.

They can replicate services. now

software they can replicate zoom

software they can replicate a slack

software in minutes using this cla

coowwork tool right and so why would I

buy software from Adobe when I can

create the exact same software in

minutes that that's the number one fear

the second fear is the collapse of

seatbased pricing so think about it

traditionally companies like Adobe and

service now um how do they charge They

charge per employee. So if a company has

got a 100 employees, they need to buy a

100 licenses. Let's say they are all in

sales, right? And each license or each

seat, they charge $500 a month. But now

with AI agents taking over employees,

you notice a lot of companies are now

retrenching people and not hiring people

anymore. So now the company that used to

have 500 salespeople now only only needs

maybe 50 salespeople and the other 450

are replaced by AI agents. So with 50

people what does it mean? You you

require less seat licenses and so uh

Adobe and Salesforce will have less

revenue because they sell less licenses.

So it is this fear that's causing people

to think oh my god you know all these

software companies their sales and

profit going to drop 50% 80% some of

them are going to go bust okay so is

this true it could this really happen

right so first understand that this is a

prediction it has not happened if you

look at the revenue and profits of

service now of uh salesforce the revenue

is still growing the profits are still

growing nothing has changed It's a

prediction that this could happen. So

the first thing to understand is that

there have been a lot of predictions

that have sounded very scary in the past

that just never happened. Right? If you

remember not too long ago in January of

last year, there was this Deep Seek out

of China where Deepseek claimed that

hey, we built this uh AI large language

model with $3 million in 3 months where

you guys spend billions and billions and

months and months to build your AI. We

can do it at a fraction. And when the

news was released, what happened? people

thought, "Oh my god, you know, Meta and

Amazon, they're overspending on on stuff

that uh just takes a few million and

Nvidia is going to go bankrupt because

now Nvidia is not going to sell chips

anymore because who needs their chips?

They can get it for far cheaper." And

that fear sparked a 43% drop in Nvidia

in January last year. And people thought

that, okay, that's the end of Nvidia,

the end of AMD. But what happened? It

didn't happen, right? In the end, like

Deep Seek disappeared, went to the went

into deep and Nvidia and AMD are

selling, you know, more chips than they

ever did, right? And the share price

then went to new heights. So, that

didn't happen. And then, of course, you

recall that again, uh, in May of last

year, you know, a lot of people were

still saying that Google is dying

because ChatGpt is eating Google's lunch

and no one is using search anymore.

They're using all these um chat GPT LLMs

and you know search is dying. But did it

happen? No. Right now Google search

market share is growing faster than

ever. Their ads are growing faster than

ever. Their cloud is growing faster than

ever. They just had blowout earnings,

great earnings, but the stock still

dropped because of all this short-term u

irrational fear. But the company's doing

really really well. And Gemini is kind

of like going to overtake CG GPT. And

again from that news what happened?

Google dropped 35%. People thought it's

the end of Google but then Google went

to all-time highs. So the first thing to

understand is that you know anyone can

make these predictions and more often

than not these predictions never turn

out to really happen the way people

predict. Okay. So could it be the same

thing with this prediction that AI will

kill software companies? Now of course

we can't just brush it aside and say oh

you know the prediction won't come true.

is rubbish. Let let's just

buy. You know, we we have to look at it

and really see is there a threat. And

the answer is uh it's more nuance. In

other words, I think there are certain

software companies that could really be

disrupted and others not so much. So, it

depends on the particular software

company. So, in this video, I'll run

through some of the more popular ones

like Adobe, like Salesforce, like

Service Now, like Microsoft. And let's

take a look which ones would be more

resilient to this potential disruption

from AI agents and which would be more

vulnerable.

Now one of the first things to

understand is that

yes with with with claude cowwork and

with a lot of these new AI tools sure we

can create software very easily. You

know we could we could replicate any

kind of software very easily. But the

thing to understand is that these

enterprise software companies their main

mode their main competitive advantage

their main product is not the software

itself because yeah you and me we can

create the software but can we scale the

software can we maintain the software

can we integrate it into the company

that that's a whole other thing right so

these enterprise software companies

their main value is not just providing

the software okay they provide three

main layers of value. What are the three

main layers? Number one, they act as a

system of record for the company or we

call it sor. Now system of record is

kind of like they act as this central

memory bank of the company as a single

source of truth for the company where

all the important data lies in this

system of record. So this system holds

the master list of who are the

customers, what are the products, who

are the employees, bank accounts, and it

tracks the who, what, when, why of every

single transaction to ensure there's a

clear audit trail for every transaction

for legal and tax purposes. So you can

create a software. Yeah, we we can

create a software but can your software

track every single transaction to create

a clear audit trail for legal and tax

purposes. So the system of record is a

strict set of rules where managers like

security like who in the company gets to

see what data or gets to change what

data. you know creating a software by

itself you know doesn't give you that

right governance the approval change uh

chain sorry for example making sure that

a manager signs off before a payment is

made to a supplier or consistency

ensuring that when you sell an item in a

company is automatically removed from

the inventory and added to the sales

report simultaneously it must all be

connected into this system of record now

system of record is not easily

replaceable

Yes, you can create a software, but you

can't easily replace the system of

record or the memory bank of the

company.

Changing a company's system of record is

like doing a heart transplant

on a person who is running a marathon.

All right, the company is like the

company is operation. It's like running

a marathon. You're doing a heart

transplant in the middle of that. It's

it's almost impossible. So AI can

generate content for these systems and

make decisions but it cannot render a

legally robust and consistent state for

these companies. The second layer that

software companies provide is a system

of engagement or they provide the

dashboard for the company or the front

office of the company. So it's the work

interface for the people to use the

software and is built to be easy to use

so that employees actually want to use

it. So this includes your graphical user

interface, your dashboards, your forms,

your task list. What are examples of

software companies that provide this

system of engagement? Well, example be

Zoom for video conferencing or Wix for

building websites or docuign for signing

documents. All these software companies

provide a system of engagement.

Now, unfortunately, this is the most

vulnerable layer that can be replaced by

AI agents. Why? Because historically,

humans like you and me had to manually

click through the menus of these uh

software companies, fill out the forms

and operate it, right? But now it's all

done automatically autonomously by AI

agents and they're replaced by

conversational interfaces where you talk

or chat your software, do this, do that,

and it just does it for you.

The third layer is the system of

intelligence and automation, the digital

operator of the company. So this is

where the software company provides the

agent or the operator layer for you for

the company where this agent will

interpret your goals where you tell it

what you want to achieve. I want to

onboard this employee. It goes figures

out the steps and then executes the task

autonomously. And it's also got

specialized intelligence. It can handle

complex and boring routines like

classifying support tickets, creating

sales quotes, or cleaning up messy data.

And it also acts as a conductor, making

different systems work together in

harmony throughout the enterprise, like

taking data from a customer relationship

management system and then checking it

against an enterprise resource planning

system and then creating a record in

support. In summary, a SAS company,

software as a service company, they

don't just provide software because

again you and me can now create software

very easily, right? But they provide

three layers. Number one, they act as a

system of record for the company analogy

like the memory data bank of the

company. Number two, they provide the

system of uh engagement which is the

dashboard layer. And thirdly, they can

provide the intelligence layer or the

brain which is the agent operator level.

Now, can all software companies do all

three things? No. Some software

companies can only do one thing. Some

can only do two. Some can do all three.

And so, how prone is a software company

to disruption of AI agents depends on

how many layers of enterprise tech they

offer the customer. So for example,

stocks like Wix, like Zoom and Docu Sign

are more prone to disruption because

they only provide the system of

engagement layer that can easily be

replaced by AI agents. Whereas companies

like your Microsoft, your Service Now,

your SAP, they provide not just the

system of engagement layer, but they

also provide the system of record layer,

even the system of intelligence layer.

For example, Salesforce has got their

own agent force that provides the

agentic operator layer, right? Microsoft

has their co-pilot studio which again is

the intelligence layer and Service Now

has got their own Service Now AI agents

that again provides that operator layer

as well. So they cover all three layers.

These are software companies that are a

lot harder to dislodge uh from their

enterprise customers. The enterprise

customers cannot just go out there and

vi put a software and then replace a

system of record, system of intelligence

overnight. Doing it is like again doing

a heart transplant on a marathon runner.

It is almost impossible. Mr. Market is

not so intelligent. Once they see

software they sell and they just get out

and ask questions later, right? And as a

result, you get the baby thrown out of

the bath water. So as an intelligent

investor, you have to look at the

specific software companies. Yes, there

are certain software companies that can

be disrupted and they are purely on

seatbased pricing. Their revenue profits

can drop 80% and that's it. But if the

company provides all three layers of

enterprise tag and the companies are

able to pivot from seatbased employee

pricing to consumption pricing where the

enterprise customer pays per prompt or

per action and not per employee, then

they can still do very well. even if

their customers reduce their headcount.

So these are the companies where I'm not

too worried about. I know that uh

eventually the share price will bounce

back to new all-time highs and no

worries. But of course there are other

software companies that we should be

more concerned about. These are the ones

that could be more easily disrupted

because they don't have uh all three

layers of enterprise tech uh for the

customer and they could be more easily

displaced by uh aentic AI. So, which are

the companies that are more prone to

disruption and which are more resilient?

I know some of you will be having that

question. Now, I won't go too much into

the technical details because then this

video is going to be like 3 hours. I'm

just going to show you a quick summary

of some of the more popular software

companies and I'll do a bit of a ranking

for you. Yeah. Okay. So, first most

popular company of course Microsoft. So,

on a scale of 1 to 10, 10 is the most

resilient. one means it's going to die

tomorrow. Microsoft is ranked 9.5.

Why? Because again it's ranked based on

its uh ability to provide these layers

to its customers. Number one based on

system of record it's 80 out of 100

ranking system of engagement 85 system

of intelligence 90 data model depth 78

agent monetization ability 95 AI

infrastructure which it provides itself

through Microsoft Azure it provides its

own infrastructure layer uh 98 out of

100. So in my opinion, I think Microsoft

is one of those uh very resilient

software companies and I have been

personally adding uh shares uh slowly

because again during a correction you

never know how low it's going to go. So

I never like add too much at one time. I

just nibble very very slowly to kind of

like average down my cost. Next, Service

Now. So Service Now has got a ranking of

9.2. Yeah, it's a rare company that

spans all three layers. So again, system

of record, system of engagement, uh

system of intelligence, again it's got

its own AI agentic layer, data model

depth 92 and agent monetization ability

90. So what does agent monetization

mean? Again, in the past uh service now

uh like Salesforce, they they charge per

employee. So the more employees, the

more they charge per license, but

they're pivoting towards uh not charging

per employee, but charging per agent and

charging based on consumption and

outcome pricing. So that's a 90 out of

100. So service now, Viva Systems, Viva

Systems is kind of like a CRM but

specialized for the health sciences

industry. So they are very specialized

with a lot of regulations. So you just

can't build a software to replace them

because that software doesn't have all

the regulations and the knowledge base

required for these very very um

sensitive industries like like

healthcare and pharmaceuticals.

Um so again they are viva vault platform

stores regulatory submissions, clinical

trial master files, quality records and

compliance documentation for life

sciences. They are all legally mandated

audit auditable data that AI cannot

replace.

The data model is extraordinarily deep

and domain specific. Switching costs are

enormous given validation requirements.

Moving off Salesforce onto its own vault

CRM further deepens their mode. So um

again they provide system of record,

system of engagement, system of

intelligence. Now this is not too high.

They don't really have uh their own

agents so to speak but their data model

depth is very high because of again uh

the regulatory requirement for the

health sciences industry. Next we've got

constellation software. This is a serial

acquirer of vertical uh software

companies. So this has a resilience

score of 8.5. Still pretty good right?

Uh, Constellation has a portfolio of 800

vertical market software businesses,

many of which are system of record,

hence 80 of 100 in different niche

industries in transit, utilities, golf

course management, funeral homes, all

very very niche uh parts of the

industry. The diversification across

hundreds of verticals is itself a hitch.

AI won't disrupt all verticals

simultaneously and many of these

subsidiaries have deep domain specific

data and mission critical workflows.

However, some of their portfolio

companies may be more system of

engagement oriented oriented and those

may be more vulnerable but not the

majority of the the companies they own.

So in terms of system of record 80 of

100 on all these niche industries system

of engagement not so much system of

intelligence not so much as well but uh

deep data model depth agent monetization

also not that much. So you can see that

for constellation software their main

resilience comes from their system of

record in niche industries as well as

their data model depth

which is basically uh their deep domain

specific data and mission critical

workflows in the many subsidiaries that

they own. Now let's go on to Salesforce.

Now Salesforce resilience not as high as

the rest but still possible right we

give it a 7 out of 10 resilience score.

Now Salesforce does span all three

layers but they are more vulnerable than

service now than consolation software

and viva systems. Why? because their CRM

data which are their contacts,

opportunities and accounts. It is a

system of record but the data model is

thinner than enterprise resource

planning grade systems such as service.

Now much of the value is in the

engagement layer. Now they also have

their CRM agent force which is their

system of intelligence layer and they

have recently started to pivot from

seatbased employee pricing to

consumptionbased pricing. But again

question is

can they execute it well? Will it work?

Again a bit of a question mark. Now if

they can then no problem. Their revenue

and profits can still grow very well

even though their customers reduce their

headcount but again it's not 100%.

Right? So again they're still in that

pivot transitory transitory process if

you will. uh at the same time uh CRM

data, customer relationship management

data is a bit more exportable uh than

regulatory or financial system on record

data. So in other words, their switching

cost is high but not as high as say

service now or or viva with high uh

regulatory hurdles to clear.

Next, Adobe. A lot of you have been

asking about Adobe. As you guys know, I

sold Adobe long ago. I sold it like

almost a year ago at like 500 bucks

because at the time I was already a bit

concerned that um all these free or low

price

um video editing and photography tools

could replace Adobe's enterprise suite

of tools, right? And uh well, I'm quite

happy I sold it, right? And I definitely

won't buy it now because I think out of

all the major software companies, I

think it's the most vulnerable. So, we

give it a rank of 5.5 out of 10. Still

passes, but it's not like super

resilient like the rest of them. Why?

Because Adobe is overwhelmingly a system

of engagement SAS company. You can see

this is 95 out of 100. Whereas its other

layers like system of record and system

of intelligence and data model depth uh

is weaker. Uh why? because their main

value proposition is their creative user

interface and workflows like their

Photoshop, their Illustrator, Premiere

Pro where you physically go in there and

you do all the work, right? So while it

owns certain format standards, it owns

PDF for example and there is switching

cost, the article's framework

specifically warns that products whose

main value lies in fancy user interface

and manual click work are more likely to

lose out because in the future all this

can be done by AI agents without humans

lifting a finger and AI native tools

like Canva, Figma, Runway and Midjourney

are democratizing creative work where

more and more people can do it even

without an artistic background. Seed

compression risk is real if one designer

plus Firefly can do the work of uh three

you know agents that use Adobe will

retrench employees and cut seeds and

that could affect their revenue and

profits in the future. Now again bear in

mind that everything I said again they

are assumptions.

So far all these companies has their

revenue dropped? No. Have their profits

dropped? No. They are still growing

their revenue and their profits. All

these are assumptions. So because of

that you notice that the intrinsic value

that is calculated is based on their

free cash flow on their growth rates.

That hasn't changed. Yeah. But it's

important to again think ahead.

Again, remember this could end up to be

a big nothing burger. Just like the

deepseek fear or the fear that check GPT

will kill Google. It could end up to be

nothing. But it is still worth looking

at it. It's worth analyzing it. And if

you ask me uh if I would add any of

these companies, I do have some of them

in my portfolio. Um I think it'll be

more like Service Now, it'll be more

like Viva, it'll be more like um

Constellation Software. For Salesforce,

I do have a small position. I'm not

adding. I'll be holding. But for Adobe,

personally, I won't I won't add it. All

right. Again, this is not a

recommendation for what you should do.

Just sharing my insights of this

software selloff. Thank you for

listening and I'll see you guys in the

next video. If you want to catch my

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Coup and may the markets be with