Blanket Sell-Off In Software Is Creating Wild Mispricing
A broad sell-off in the software sector is leading to significant mispricing, with investors overly focused on AI-driven displacement risks. The analysis emphasizes evaluating software businesses based on their 'non-zero sumness' (NZS), or ability to create win-win outcomes. Consumption-based pricing models are favored, while high seat-risk software represents minimal portfolio exposure. The market's indiscriminate selling may be overlooking fundamental strengths in certain software companies.
- ▪The sell-off in software stocks is driven by concerns over AI-related displacement risks.
- ▪NZS Capital assesses software investments based on non-zero sumness, or win-win dynamics across stakeholders.
- ▪Consumption or take-rate based pricing models make up a significant portion of their software holdings.
- ▪Higher seat-risk businesses like Workday, Atlassian, and Figma account for less than 3% of the portfolio.
- ▪The mispricing presents potential opportunities due to the market’s blanket pessimism on software.
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