Episode summary
Catching a Falling Knife: The Truth About Software Stocks Today | The Real Eisman Playbook Ep 54
The Real Eisman Playbook
· · Hosts: Steve Eisman · Guests: Rob Oliver
Summary
Software stocks are being repriced around a simple fear: AI may make it much cheaper to build software, weaken moats, and reduce the need for seats, pricing power, and headcount. Rob Oliver said the sector’s old strengths were sticky enterprise workflows, recurring revenue, and hard-to-replace systems of record, but the market is now worried those advantages can be replicated faster and more cheaply with AI.
Oliver argued that the bear case is built on several linked concerns: lower barriers to creating software, fewer seats per customer, less annual price increase, and the possibility that AI-native vendors or the large model providers could sell directly into enterprises. He said valuations have already fallen sharply, with average price-to-sales on his list dropping from about 6.5 to 3.5, and some names like Adobe and Salesforce trading at far lower multiples than they used to.
He was still constructive on companies with strong vertical focus, deep workflow integration, and proprietary operating data, especially firms serving regulated or hard-to-change markets like government or healthcare. But Steve Eisman’s conclusion was cautionary: the sector may eventually recover, yet the combination of narrative risk, uncertain growth, and collapsing investor confidence makes this look like a falling knife for now.
Key takeaways
- Rob Oliver said software valuations on his coverage list have been cut roughly in half, with average price-to-sales falling from about 6.5 to 3.5.
- The core bear case is that AI reduces the cost of creating software, which could weaken pricing power and slow revenue growth across the sector.
- Oliver thinks vertical software firms such as Tyler are better protected because they have sticky workflows, regulated customers, and proprietary operational data.
- The market is also worried that AI-native vendors or model providers like OpenAI and Anthropic could sell directly to enterprises.
- Eisman said the group’s collapse is not a buy signal for typical software investors, because cheaper valuations usually imply something has broken.
Notable quotes
“This is a group that has just been obliterated in the last year because of fears about AI”
“the cost of creating software has come down a lot”
“valuation has never been a reason to buy software”
“Nobody loves software right now”
“trying to buy the group here is like catching a falling knife”
How the episode opens
Hey, this is Steve Eisman. Welcome to another episode of the Real Eisman Playbook. And today we're going to talk all things software with a new guest, Rob Oliver, who is a software analyst at Baird.
This is a group that has just been obliterated in the last year because of fears about AI, which we're going to get into. investors are trying to understand what has happened to this group, why, and is there any light at the end of the tunnel? It's going to be a great conversation, really informative, and I'm really looking forward to it.
And afterwards, I'll come back and discuss lessons learned. Hi, this is Steve Eisman and welcome to another episode of the Real Eyesman Playbook. So today we're going to talk about software.
And I said to my guest before he walked in that if there wasn't a war on, he'd be the most important person you could talk to. But now he's maybe he's only the second most important person to talk to. So today we have Rob Oliver who's a software analyst at Baird.
Welcome Rob.
Great Steve. Uh thanks so much for having me. It's a pleasure to be here.
So you cover a group. I mean, I've never seen a group go through such tumultuous change in such a short period of time other than the financial companies during the financial crisis. And nothing bad has really happened yet to your group.
It's all supposedly coming. So, let's take a step back. Let's do a little history.
Why has software been a great group to own for years? And what's happened to the group in the last six months? Let's bring everybody up up to up to the same level.
Start.
Sure. Yeah. Thanks. I think it's important to kind of step back.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- software stocks
- valuation drawdown
- stock based compensation
- ai native strategies
- vertical software
Companies and tickers mentioned
- Baird
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Real Eisman Playbook, this episode and its artwork belong to Steve Eisman. Octagon is not affiliated with the show; this page is an independent summary.
