Episode summary
Can Software Survive AI?
Exchanges (Goldman Sachs)
· · Guests: Gabriela Borges
Summary
Investor anxiety about AI disruption has driven a sharp selloff in software stocks, but Gabriela Borges argues the story is more nuanced than an existential threat to the entire sector. She says the last three months changed sentiment as coding models improved, enterprise adoption accelerated, and competition from Anthropic, OpenAI and others intensified. That combination forced investors to rethink which software companies have durable advantages and which may be most exposed.
Borges says the key question is whether incumbents can turn their data, domain knowledge and installed base into better AI products than newer native AI tools. She points to companies such as CrowdStrike, Salesforce and Microsoft as examples where moats could still matter, but only if management teams prove they can monetize AI, modernize tech stacks and keep product roadmaps relevant. She also emphasizes due diligence in the private company ecosystem and technical conversations with CTOs and engineers.
On stabilization, Borges says the numbers need to contradict the negative narrative. She cites deteriorating ARR growth and LTV-to-CAC over four years, but says there are signs of improvement in earnings season and a shift toward value-oriented and GARP investors. She expects software leaders to respond with M&A, organic innovation and better GAAP earnings power, helping support valuations over time.
Key takeaways
- Borges says the AI shock to software is real, but she sees selective winners rather than a sector-wide collapse.
- She argues durable moats come from data, domain experience and context, but companies must prove AI products outperform plug-in alternatives.
- Borges says software leaders need three things to endure: a modern tech stack, a strong roadmap and measurable AI monetization.
- She says sector stabilization depends on fundamentals improving, especially ARR growth and LTV-to-CAC.
- Borges sees a shift toward value and GARP investors as growth slows from above 20% in 2020-2021 to about 10% today.
Notable quotes
“Does AI pose an existential risk to the software industry? Investors have been grappling with that question”
“It's been a really interesting three months, and if I were to pick out a couple of the milestones”
“the data set they have and the domain experience and the context that they have actually becomes really important”
“the numbers need to contradict the narrative”
“back in 2020 and 2021, the median company in this space was growing north of 20%. That number is much closer to 10% today”
How the episode opens
Does AI pose an existential risk to the software industry? Investors have been grappling with that question leading to profound selloffs in software stocks this year. But are their concerns actually merited, and how can investors sort out the winners from the losers?
I'm Allison Nathan, and this is Goldman Sachs Exchanges. Today I'm joined by Gabriela Borges, who covers the software sector with Goldman Sachs Research. We recently featured Gabriela in our latest Top of Mind report, which explored these very questions.
Gabriela, welcome to Exchanges. It's a pleasure. Thank you for having me.
This is the first time, so I m excited to have this conversation. Yeah, absolutely. It's been a very tumultuous time for the software industry, so great to have you.
So Gabriela, let's just set the stage. Generative AI has been around for several years now, but the market narrative around AI seems to have really shifted from one of enthusiasm to one of concern and concern in particular in recent months about AI disruption risk with the focus really on your sector, on the software sector. So walk us through why that is and what made investors rethink the prospects for software companies.
Yeah, absolutely. It's been a really interesting three months, and if I were to pick out a couple of the milestones that really had investors level up the amount of attention that they were paying to software in particular and enterprise software even within that, I would say it started with significant improvements in coding algorithms. So that's things like Anthropic s Claude code, which is a tool that helps you code more effectively if you're a developer.
In January, Anthropic then put a wrapper around Claude code that made it accessible to the average everyday knowledge worker like you and me.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai disruption
- software sector
- market stabilization
- research outlook
- top of mind report
Companies and tickers mentioned
- GS
- Goldman Sachs
Watch the episode
Watch “Can Software Survive AI?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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