Company Interview / Opportunities amidst the SaaS-pocalypse

Key Points:

AI disruption has triggered a steep selloff in software and tech stocksThe future of the per-seat SaaS model is under scrutiny due to AI automationCompanies with strong customer stickiness and integration, like Salesforce (NYSE:CRM), Oracle (NYSE:ORCL), and ServiceNow (NYSE:NOW), are well-positioned for AI monetisationCurrent valuations present rare opportunities for long-term investors

Daniel Reaper of Grey Street Partners shares views on the recent sharp selloff in software and long-duration tech stocks, often referred to as the "SaaS apocalypse". Reaper notes the downturn, which started in October last year and intensified through February, is driven not only by cyclical factors but underlying structural challenges. The emergence of AI agents such as Anthropic’s Claude demonstrates these technologies’ ability to replace traditional workflows, raising questions about the future of the per-seat software licensing model. As AI systems handle tasks previously managed by teams of employees, concerns arise over shrinking revenue bases for established software companies.

Reaper points to market fear and indiscriminate selling, triggered by uncertainty over which companies will lead in AI adoption. This climate, he argues, has pushed valuations far below historical averages. For example, US software as tracked by the iShares Tech and Software ETF (IGV) now trades at a forward PE of 20, compared to a ten-year average of 34. Reaper sees significant overselling, especially in durable companies with strong customer relationships, integrated workflows, and robust compliance structures.

In terms of opportunity, Reaper highlights platforms with critical enterprise workflows and sticky customer bases. Salesforce (NYSE:CRM), Oracle (NYSE:ORCL), and ServiceNow (NYSE:NOW) stand out for their ability to integrate AI into existing core operations. Reaper also notes strong financials and buyback activity at Salesforce and resilience at Oracle, especially given its secure position with large, data-sensitive enterprises.