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Accept Decline
2 minutes to read by  PH&N Institutional team May 19, 2026

The software industry has experienced a remarkable decade of growth and value creation, driven by the proliferation of cloud computing, the shift toward Software-as-a-Service (SaaS) models, and the increasing digitalization of enterprise operations. This growth was underpinned by a powerful investment thesis: software businesses possessed durable competitive moats through high switching costs, user lock-in, and integration complexity, enabling market leaders to compound revenue and earnings for years.

The sector’s expansion reflected a simple premise – that enterprises would pay predictable, recurring fees to avoid the costs and friction of replacing often mission-critical systems. This monetization model was particularly powerful at scale: per-seat pricing created natural revenue expansion as organizations grew, with each new hire or expanded department representing incremental margin that could be harvested for years to come. Yet this structural picture is now being disrupted at its foundation by artificial intelligence (AI), which is fundamentally challenging the assumptions that powered the industry’s bull case for the past decade.

The bear thesis that has emerged and is now dominating market sentiment is that agentic AI will eventually collapse the SaaS stack, driving valuations toward zero. This argument functions as a “non-disprovable negative thesis” – in the short run, no single quarter of revenue beats, no round of margin expansion, and no improvement in net retention can refute a thesis that relies on the word “eventually.” While this bear thesis cannot be disproven in the near term, it obscures a more nuanced reality: the structural challenges facing software are real, but they are not uniformly distributed. Rather than dismissing the industry as doomed, we aim to determine which specific aspects of the traditional software business model are under genuine pressure, and which may prove more resilient than skeptics assume.

Read the full piece here.

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