The Software Obituary Is Wrong

Every few years, someone declares software dead. Open source was supposed to kill it. Then no code and low code were supposed to make developers obsolete. Instead, each wave expanded the surface area of software, changed how it was built, and helped create another generation of valuable companies. AI is the latest candidate for executioner, but the pattern looks familiar. Developer tools have been advancing for years, and software spending is still growing, not disappearing.

A developer ships a prototype in 45 minutes. The clip goes viral. Billions of dollars in market cap evaporate (see Figure 1 and Figure 2 in the Appendix). The story seems obvious: software is collapsing, barriers to entry are gone, and value is about to be wiped out.

But stories travel faster than reality. A faster prototype is not the same as a durable company or a reliable platform. Easier code generation is not the same as distribution, trust, workflow ownership, or embeddedness inside an enterprise. And that gap between the narrative and the business reality is usually where the real opportunity lives.

The decision to build or buy software has always rested on one question: is it cheaper, faster, and easier to build it yourself, or to buy it from someone who already has?

AI has lowered the cost of building. That part is true. What most people miss is that it has also lowered the cost of running a software business. The same tools that let a startup prototype an app in an afternoon let an incumbent cut engineering costs, ship features faster, and restructure their entire cost base. The equation hasn't changed. Both sides moved.

And building the prototype was never the hard part. Maintaining it is. Keeping software secure, compliant, integrated, and current is expensive, unglamorous work that never stops. Most companies have no interest in taking that on for tools they cannot monetize. They never have.

There is also a broader pattern here. Every high growth, high margin industry eventually goes through this transition. Competition increases. New technologies emerge. Margins compress. This is not death. It is maturation. The mistake is confusing an industry entering its next phase with an industry entering its grave. Mature industries still produce enormous businesses. They just reward different qualities.

What makes this moment complex is that the market is rerating software as a category, pricing it less like a growth industry and more like a maturing one. That shift is not wrong. But it is being applied with a broad brush. Some companies being rerated as mature are still compounding at rates most industries are not seeing. Others being afforded growth premiums are quietly showing the margin pressure and slowing expansion that defines a business past its peak.

Many of these businesses are still losing money, sustained by the promise of future scale. Which ones will earn that future, and which are borrowing against one they will never reach? Answering that well requires understanding competitive dynamics, product durability, and the distance between where a company stands and where disruption is heading. That is where fundamental investors with a sharp sense of what disruption actually does have always had an edge. This moment is no different.

The intersection of these two dimensions defines the opportunity set.

The companies best positioned to benefit from this shift own proprietary data that improves with use, coordinate across multiple parties, tie revenue to transactions or outcomes, and are deeply embedded in customer workflows. These businesses are amplified by cheaper intelligence.

On the other side are companies built on internal productivity tools, seat based pricing, and shallow data advantages (see Figure 3 and Figure 4 in the Appendix). If your product can be replicated in a weekend, your pricing power is going to reflect that.

For investors, the opportunity is identifying the companies whose advantages compound as intelligence becomes more abundant. For operators, the message is similar: the same forces disrupting your industry are also available to you.

The strongest software businesses are not necessarily victims of this shift. They have access to the same tools as their would be disruptors, but they also have something far harder to replicate: years of customer relationships, proprietary data, embedded workflows, and coordination infrastructure that is difficult to rebuild from scratch.

We score more than 5,000 companies on disruption risk. As early as 2023, multiple software companies were screening poorly in our framework, and we kept our exposure aligned with that elevated risk. But the market has gone too far in treating software as a single trade. The baby has been thrown out with the bathwater, creating opportunities for those with a fundamental process and a disruption framework robust enough to distinguish the few real winners from the broader narrative.

The game is not over. The rules have changed. And the entire question is who benefits from the new rules.

The market is starting to price the divide between software with strengthening moats and software facing structural erosion.

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