Key insights
- The author argues that the narrative of AI replacing SaaS and causing market decline is flawed. While Salesforce might lose revenue, other companies will save on subscription costs, leading to a net increase in market value. The high growth potential of AI alternatives should maintain similar valuation multiples as traditional SaaS companies.
For a while there has been a narrative that a reason the market is down because sas is going to be replaced with AI. A key example of this is salesforce. But if the argument is that AI will create a cheaper alternative to salesforce, whatever the earnings loss is for salesforce, other companies should save by cutting thier salesforce subscription cost. In short if a new technology makes a company obsolete it should net increase market values not decrease.
A few notes:
Someone might try to argue that theres a difference of multiples. If salesforce trades at a pe of 30 and citigroup is 15, and citigroup no longer needs to pay x$ , you lose value equal to half the revenue loss. However the reason sas usually has a high pe is because of high growth rates. If you could completely replace the sas company with an ai alternative then that trend should still grow at the same rate as the old sas.