Are all software companies going to zero?

Should we short Figma and ServiceNow? I think not.

The stock markets are brutally punishing software companies right now. If you look at the stock price of any well-known software company like Figma, for example, you see that the stock price has been going down for quite a while.

It’s been said that the reasoning for this is that it’s becoming easier and easier to build software because of the rise of AI. And so the question is, is the price of software actually going to zero or is something else going to happen?

Yes?

If you, in the last few months, have used something like Claude Code and you have written software before that period of having access to AI, it’s pretty easy to believe that the price of software is indeed going to zero.

Although there are still clear shortcomings of the current AI, we also know that today AI is at its worst that it will ever be going forward. And so it’s very easy to imagine that, yes, it will be possible to build software of almost any shape and size and complexity eventually by just prompting.

No?

Having said that, at the same time, what anybody who’s built software that actually serves customers has learned is that it’s not just the writing of the software that provides the value. It’s also the insights that you gain from working with customers and prospects, the iteration upon feedback that you’re getting and slowly building something that creates more and more value for the people that you serve, that solves more and more problems for those people. And although AI will probably get you a really long way into figuring out what are the problems to solve, it isn’t magical product market fit by itself.

Now here’s where you may argue that, in fact, this is irrelevant because every company will create task-specific software. So you don’t have to worry about iterating towards customers. You only have to build for what you yourself specifically need. And I think there is some merit in this argument, even though at face value it might seem unbelievable that we’re going to build custom software for every particular problem we face. To some degree, it makes more sense than ever before. If you’ve ever worked in revenue operations or RevOps as it’s called, you know that there’s one million different apps to connect the other different apps in the sales software stack and somehow you end up spending millions of dollars on solving what seems to be not a very complex problem about moving some data about.

But I can also imagine a reality in which both things are true. You buy certain apps because they’re well developed. They solve a particular problem better than you could figure out on your own, on a whim, how to solve those problems. At the same time, you would build certain apps fully customized.

Really, I would say that long term, I would be short on Salesforce and long on Figma.

Everything else is the value

But does this mean that software companies necessarily should go down? No, I don’t think so. I still think that a software company is more than just its software. Even though the price or the cost of building software is reducing quite significantly over time:

First, companies will produce much more of it, solve a greater number of problems for their customers, and do that much better than ever before.

Secondarily, there are a lot of other things to a company that make it valuable: the trust of working with a particular company and its people, the support it may deliver, or beyond all of that, the underlying infrastructure necessary to solve the problems that they have.

And so, a company might be on the surface selling software, but in reality, to be able to do so—to operate and sell that software—it needs to do much more in the real world, whether that is operating a particular type of hardware, handling legal matters, or managing financial aspects.

And then at the very end, we can simply look at whether a company is actually producing value by looking at its financial performance. So we see companies like Figma and ServiceNow performing exceptionally well, beating all estimates and still getting hammered in the stock market. I would guess that they will continue to excel because these are excellent companies ran by excellent people. Over time, the stock market will realize that. Well, maybe software is getting more affordable to build. It doesn’t mean that everybody’s going to build billion-dollar companies.