Software Stocks

About Software Stocks

Software is the best business model anyone has found. Build it once, sell it forever, and the next copy costs nothing. That is entirely priced in. The group carries some of the highest multiples in the market, which makes it a rates trade whether or not the people who own it think of it that way. Most of the value sits in cash flows years out, so when discount rates rise these fall first and furthest.

The subscription is what you are actually buying. Revenue arrives under contract and renews by default, which is why anyone serious about the sector watches net retention and billings rather than the revenue line.

Two things break it. Seat-based pricing stops growing the moment customers stop hiring, so a hiring freeze at the customer is a revenue problem at the vendor with no cancellation involved. And the market cannot decide whether AI is an enormous tailwind for software or the thing that makes writing software cheap enough to skip buying it. Nobody has settled that, and the multiple you pay is mostly a bet on which way it goes.

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