Key insights
- The author argues that SaaS stocks are being repriced due to a ceiling on Total Addressable Market (TAM) and increased competition leading to a 'red ocean' scenario. Lowered replication costs erode individual stock IP and brand moats. Microsoft is positioned as a potential winner due to its comprehensive SaaS suite, cloud infrastructure, and AI capabilities, suggesting a bearish outlook for most individual SaaS companies.
Another wave of SAAS sell off.
Another hopeful wave of rebound.
But no one explains WHY investors really repriced them. My thesis is entirely based on 2 fundamentals - one is TAM and two defensiveness. That is all i need as strategic investor.
- TAM has a ceiling for all categories of software as subscribers churn in and out. AI seat compression is real but not the biggest threat. Biggest threat is a lowered cost of replication. This creates true red ocean situation- all vendors try to replicate enterprise features and fight each other. So TAM stays flat for the category but not for individual stock 2. In red ocean market, IP and market position produce zero sum game to retain and attract new clients among players. in this game everyone against everyone, individual stock IP+brand moat deteriorates which in turn, reduces asset value as sum of brand+IP+customer base.
Microsoft is probably only one winner in this game as owner of full enterprise SaaS suite, cloud and co-owner of AI