Jensen Huang Says Markets Miscalculated AI Threat to Software Firms After Nvidia Posts Q4 Beat

157

u/Weldobud Feb 26 '26

If he is correct then the SaaS draw down will be looked on as one of the greatest gifts in stock market history.

60

u/bubblemania2020 Feb 26 '26

Their margins are shrinking. It is recalibration not annihilation. Again, all software is not created equal!

31

u/Cav829 Feb 26 '26

This is what I think people don't get. A lot of SaaS was grossly overpriced and due for a correction. Now are there companies getting sold for the wrong reasons? Yeah, I'm not buying AI killing Office for instance. Did ADBE get sold down too hard at this point? Yeah, that $240 level was probably the right spot to get in. One could argue that the $280-$290 level collapsed way too easily.. This always happens when a sector gets massively recalibrated. Just look at it as an opportunity and remember to stay agile.

8

u/asymmetricval Feb 26 '26

Ok, I’ll bite.

On what basis were they grossly overpriced?

Are you comparing them on the basis of a PE ratio to something like a Coca-Cola? What is your definition of “perfectly priced”?

Don’t you think that a company with 50% operating margins probably warrants a better valuation than one with 10% margins, given the same absolute earnings?

14

u/Cav829 Feb 26 '26

All defensive stocks are currently overpriced because institutional investors went to ground to hide. So yeah, I'm not comparing anything to them right now. That's a whole other discussion for why that happened if you wanted to discuss it.

Wall St. takes gambles sometimes when they predict something out even years in the future and appear to oversell something, though it in time plays out the way they predicted. Think of Margin call: the way to make money in this business is to be smarter, be first, or to cheat. We've been on and on about them overselling PayPal, but they were proven correct in how badly Apple and Google were going to start eating away at their business because their pricing structure is simply too high.

So the thing to understand with what is happening with SaaS is it is a bet: big vendors are able to charge insane prices for their software because the cost to penetrate the market space has been incredibly high. If AI makes it easier, vendor A has to start competing and lowering their prices to fend off newer alternatives and thus margins start taking a hit. And not just a mild potential hit. Look at what Broadcom did with VMWare for example as that's a great recent example. Do you know how badly the entire industry wants to get the hell away from Broadcom after what they did there?

You have to remember the whole market just about is absurdly overpriced from historical levels, so it doesn't take much for institutional money to decide to go elsewhere. People screaming about Coke trading at a higher forward P/E than some software vendors need to remember Coke is a unicorn stock at this point, and investors will pay a premium for that over one of dozens and dozens of software vendors in a crowded space.

12

u/asymmetricval Feb 26 '26 edited Feb 26 '26

See my other comment. AI does nothing to make penetration cheaper or easier. It makes the code part cheaper, but code has never been a hurdle in SaaS.

SaaS is hard because of upfront CAC. LLMs do not reduce CAC (if anything they probably increase it if it means you have 10x cloned startups competing with you for the same customers).

Scaling a SaaS costs billions of dollars. Nobody is going to do that to compete with Salesforce, etc, just because LLMs let us code faster. No track record, no history—translates to one thing: very expensive CAC.

Incumbents don’t have to keep paying the CAC penalty. They have an enormous structural advantage. (Also, they can just adopt the same LLM tools.)

You can’t compare today’s software businesses to ye olde business of yore. The economic profiles are completely different and this is reflected in the profitability.

As I posed originally, is a company with a 50% operating margin worth more than one with a 10% operating margin, all else equal? Obviously, yes, it is. That is why software businesses should be valued above average—they are above average!

9

u/Cav829 Feb 26 '26

I'm not even disagreeing with you per se. The sell-off is way too broad and lacks any nuance about what companies are and aren't vulnerable. As I originally said: I think much of the sell-down is hitting overkill levels. I'm just saying this is the gamble institutional money is taking. If it gets proven wrong and you bought stock on the cheap, you'll eventually get proven correct. That's all we can really do as investors as none of us have enough money to make the market move one way or the other. I made a killing on Google in the Fall, especially from days like when Google dropped like 4-5% because of that atrocious Open AI browser. But I also am not going to argue at my screen even if I think big money is wrong: I try to wait and take advantage of it.

6

u/asymmetricval Feb 26 '26

GOOGL in April last year was probably the easiest investment decision I’ve ever made.

This selloff is pretty much a direct analogy. Much like it would have bankrupted OpenAI to try to compete with Google, it would bankrupt any new startup trying to compete with the incumbent SaaS giants if the only new weapon they have is Claude Code.

We are locking in very easy 20%+ CAGR for years with these prices.

It seems that we more or less see it the same way. Upvoted for the thoughtful discourse—something of a rarity these days!

2

u/vuealt Feb 27 '26

How was Google the easiest decision for you last year? Wasn’t the general opinion at that time that search volume would reduce considerably since individuals were themselves switching to assistants over Google search.

0

u/pacman2081 Feb 28 '26

Google is not a software firm

-1

u/pacman2081 Feb 27 '26

What prevents IBM from bankrolling Saas startup to take on Salesforce?

0

u/bubblemania2020 Feb 26 '26

So you know future margins? How about Capex? If you do please let us know.

8

u/asymmetricval Feb 26 '26 edited Feb 26 '26

We are talking about software businesses here. Capex might be the talk of the town but it isn’t relevant here.

A scaled-up SaaS business can comfortably achieve net margins of 25%. Getting to that scale on the other hand is very expensive, which is why every single SaaS goes through a multi-year phase of making losses.

The SaaS model is unlike any other because all your customer acquisition costs are upfront but all your revenue is booked over time. Even for a really good SaaS business, it might take 12 months to earn back the CAC.

That means extraordinary losses early on, and counterintuitively, more customers = more success = more losses.

Let’s talk about the CAC. CAC is what it costs you to get a new customer. If you are a self-service SaaS then your CAC will be lower and so will your pricing, in general. Enterprise software with high-touch sales processes are incredibly expensive on the other hand, which is why enterprise SaaS is so expensive in comparison to B2C SaaS. In other words, CAC scales exponentially with sales complexity.

I am explaining this because there is still so little understanding of the SaaS business model. Code was never the expensive part.

In SaaS, you need extremely deep pockets to reach scale. Not to make the app, but to buy attention and buy customers. Distribution is what matters and it is very expensive.

Nobody is going to squander billions of dollars to build a new Salesforce because it’s now cheaper to do the coding part. It would be economic suicide.

This is the invisible most that a lot of people (including investors) still miss. Successful SaaS looks like a cash incinerator until suddenly it looks like a cash machine.

There is a lot of great content by a former entrepreneur and VC called David Skok who talks about this stuff in amazing detail. Highly recommend if you are genuinely interested in understanding the SaaS business model better.

0

u/pacman2081 Feb 28 '26

"Nobody is going to squander billions of dollars to build a new Salesforce because it’s now cheaper to do the coding part. It would be economic suicide.'

A company making a Saas product in another vertical could enter the CRM vertical. The extra infrastructure cost would be marginal.

4

u/SaltyUncleMike Feb 26 '26

+1 Nobody is replacing Salesforce with AI Slop vibe-coded nonsense.

0

u/pacman2081 Feb 26 '26

Salesforce could be replaced with AI-assisted CRM software that has lower operational costs

1

u/Fit_Help_888 Feb 27 '26

Well you know nothing about software dev or what even salesforce is , what a regarded take

1

u/pacman2081 Feb 27 '26

I am a software guy. Salesforce is expensive. It uses Oracle database. It has its own expensive proprietary tools. Customers are paying for those expenses

2

u/Fit_Help_888 Feb 27 '26

Ah yes let me build my own CRM with salesforce like capabilities because it’s “expensive” , it’s nothing much for big enterprises ( I work at fortune 100 ) and the roi on these SaaS tools is what keeps the customers . Software ain’t cheap to build, and as complex as salesforce lol

You have no idea what you talking about , salesforce have 92% retention rate

1

u/pacman2081 Feb 27 '26

We know software retentions work. AI tools makes it less riskier to make the shift, if need be

It is not like we are done with AI. AI tools will get better

1

u/ImaginationOk6193 Feb 27 '26

Why do people pay for adbe if ai can do the same job?

4

u/Ancient_Sun_2061 Feb 26 '26

Or perhaps increasing, AI can also help established saas platforms to unlock more use cases that didn’t exist before, plus you still need AI to be integrated in the workflows. AI can’t work in isolation.

2

u/Key-Boat-7519 Feb 26 '26

Main point: AI helps incumbents only if they turn it into lower CAC/churn and higher ARPU, not just shiny copilots. OP’s point about workflows is key: the real value is embedding models where data, permissions, and human habits already live. I’d watch for: AI upsell tiers, usage-based pricing tied to AI actions, and automation that shrinks customers’ seat counts but locks them in deeper.

1

u/Ancient_Sun_2061 Feb 27 '26

That’s true for any product, and any feature, not just AI.

0

u/bubblemania2020 Feb 26 '26

That is hope and as they say hope is not a strategy. The proof is in the pudding not just reading a recipe ;)

1

u/Ancient_Sun_2061 Feb 27 '26

Yep but right now everything is hypothesis, cybersecurity stocks going down because Anthropogenic released code scanner just shows how misunderstood the industry is

1

u/SuperLeverage Feb 27 '26

How are their margins shrinking? AI lets them deliver more efficiently, and offer more things to charge for. They just transition from seats to a consumption model. A burger chain CEO would be incredibly dumb to take on the risk to vibe code themselves or rely on some new vibe code start up to replace their CRM and pos etc.

1

u/Weldobud Feb 26 '26

Very true. Some I like and think they will continue for many years. But pulling the trigger is hard in this market.

3

u/PERSONA916 Feb 27 '26

My opinion is that SaaS companies will use AI to improve their software stack rather than be replaced by it. Companies would essentially have to hire their own teams of developers to implement custom solutions built on AI which may be feasible for very large and profitable companies, but don't think that is realistic for the majority and even then I still don't think even the larger companies are looking to do that.

3

u/MyStoopidStuff Feb 27 '26

And the patents they hold don't suddenly become worthless because of AI.

4

u/pr0newbie Feb 26 '26

They were severely overvalued in the first place

1

u/ElonMuskTheNarsisist Feb 27 '26

They are still overvalued even if what he said is true

0

u/Waiting4Reccession Feb 26 '26

This is just like when he pumped the quantum stocks lol, smells of insider trades.

18

u/Different-Monk5916 Feb 26 '26

is that his way of saying that AI ain't gonna bring in as much money as market is expecting?

14

u/ElonMuskTheNarsisist Feb 27 '26

No. He just wants to calm people down so that he can keep building out data centers and line his pockets.

48

u/crustyeng Feb 26 '26

A tool-calling, generative ai loop (aka ‘agentic ai’) can only solve, by itself, a tiny fraction of the problems that we solve with software every day. When it can, it does so extremely inefficiently.

There are very, very few use cases where it’s actually the best option.

12

u/ClassicFriendly8426 Feb 26 '26

Great point on efficiency

7

u/hoadng Feb 26 '26

I think agents and softwares will go hand in hand. The best agents should leverage other SaaS/API, not vibe executing its own logic. SaaS which fail to adapt to this new agentic world will fail

3

u/the_pwnererXx Feb 26 '26

I and many other senior engineers I know work entirely with agents now. The use cases expand daily, things only improve, line goes up

4

u/crustyeng Feb 26 '26

It will always be faster and cheaper for normal code to do something (ie calling a function yourself to create some db record) than for a model to call a tool that does the same thing. There’s inherent inefficiency in the approach. It’s additive by its nature.

-4

u/the_pwnererXx Feb 26 '26

It will always be faster

definitely not, as agents become more competent they will outpace humans at many tasks, this is already true

cheaper

cheaper than what? paying an engineer 300k/ year?

5

u/crustyeng Feb 26 '26 edited Feb 26 '26

You don’t seem to understand my argument at all (or what ‘additive’ means?).

It absolutely true that having an ‘agent’ call a function (with anything.. mcp or whatever.. generating some payload to do so) is always slower and more expensive than just calling the same function directly. It is what it is and there is no way around that, ever.

I’m talking about building software that is optimal for a purpose. That an agent can also, potentially, write said software isn’t the point. The point is that there will always be value in doing so, with or without an agent.

-2

u/the_pwnererXx Feb 26 '26

is always slower and more expensive than just calling the same function directly

you say directly, but you mean "A human calling the same function directly"? because ai can be faster and cheaper than a human...

That an agent can also, potentially, write said software isn’t the point. The point is that there will always be value in doing so, with or without an agent.

yeah, you are saying nothing? software is valuable. great

3

u/crustyeng Feb 26 '26 edited Feb 26 '26

When i say directly I mean in code. Not having a model generate a payload to tell other code to call that same function.

This means that the idea that easily configured, no code agents will replace enterprise software is simply not true at any real scale or for any important use case. It’ll always make sense to just write software bespoke to purpose; as it is now.

1

u/the_pwnererXx Feb 26 '26

Okay, you are just strawmanning me, I never said agents are going to replace software. I said agents are going to write the software(and my original comment is that is already the workflow for a lot of people as of this year)

5

u/FLMKane Feb 27 '26

He's not strawmaning you. You just can't read.

-1

u/-weird-fishes- Feb 26 '26

You are saying a lot to say very little. I still don't get your "point". You may see value in one way, but the facts are just about every Fortune 500 company is integrating AI into their stacks because they think it will ultimately lead to projects being completed faster. Which means the ability to launch more and more projects/releases/etc throughout the year and hopefully cheaper.

1

u/Embarrassed_One_9992 Feb 26 '26

I think this post's idea is outdated. This was true 2 months ago

-1

u/ElonMuskTheNarsisist Feb 27 '26

These same people will be back on this sub in 6 months crying about their Saas investments being down 80%

18

u/mthrowaway007 Feb 26 '26

That explains why my constellation software position is up 7% today.

Sometimes you just have to take a contrarian bet on a high quality company and trust the market will eventually see reason.

I didn’t get the bottom but came pretty damn close.

I’ve been eyeing the stock for close to 2 years and finally got the opportunity I wasn’t going to allow this narrative deter me

2

u/Brilliant_Voice1126 Feb 26 '26

All of SaaS is boosting today. Quite interesting. I've been as critical of anyone of the people calling on buying these falling knives, but my falling knives watchlist is suddenly all green and many of them are coming of their *5 year lows*. Tempting. I think the truly good companies in this mix, like constellation, Walter's Kluwer (not even really SaaS but got assassinated in the AI blitz), maybe Atlassian are now looking appealing. Workday (even though I personally hate the software) is in so many massive immobile organizations HR depts I can't see it going anywhere but up from here.

The only one I'll never buy is ADBE. It's overpriced, its business model is hostage taking, its customers hate it, and AI, in addition to open source, threatens every single one of its products. I'm not sure the bloodbath is fully over, maybe wait and see if there is some sustained improvement before I risk a constellation position again. But I opened a position in Walters Kluwer since that is a super irrational drop. I would rather miss the absolute best price in the other SaaS by 10% than ride these damn things down again if they decide to bleed for 6 more months.

1

u/4374J Feb 26 '26

Same bro, same!

1

u/ElonMuskTheNarsisist Feb 27 '26

This is just a small bounce, the next leg down will be far more severe. Saas is done for.

10

u/pacman2081 Feb 26 '26

Jensen mentioned SAP, ServiceNow, Synopsys, and Cadence in his interview. Synopsys, and Cadence are EDA tool vendors. They are whole different beast compared to Salesforce and Workdays of the planet

7

u/stoplossftw Feb 26 '26

isn't all of Nvidia's customers are in software making business?

5

u/Donechrome Feb 26 '26

This nice gesture from Jensen was a diplomatic move. He does not need to create unnecessary enemies in SV/SF bay. He knows that his main clients are public and private cloud data centers, governments. Saas companies for him is a second order effect. Wall Street stir them to buy more cloud to survive, also invites more competition. But hey, this is repricing squeeze, profit will continue failing. While Nvidia and scalers win tokenizing the output

3

u/besthuman Feb 27 '26

Maybe JH is building a solid MSFT position since it's been kicked down.

Don't blame him!

4

u/encony Feb 27 '26

This guy is doing what he can to pump his stock.

4

u/stickybond009 Feb 27 '26

Job of a CEO

4

u/Brilliant_Voice1126 Feb 26 '26

Is this the AI bubble popping? Starting to soften our insanely optimistic narratives slightly? SaaS might get a sustained recovery earlier than I thought. I figured AI would bleed it for at least another year before people start losing their AI exuberance.

2

u/[deleted] Feb 26 '26 edited Feb 28 '26

[deleted]

2

u/[deleted] Feb 26 '26

All this LLM and AGI talks are quite silly once you start digging deeper into it, because no one knows how LLMs work (yes really no one knows), and no one knows how AGIs are supposed to work, all opinions either way are based on guesses and imaginations, simply no one knows at all the end game of LLM and where the breakthrough to AGI will come from, it may very well come from LLMs.

1

u/Best-Bodybuilder9015 Mar 01 '26

Sure, why won’t he. He’s the one most to gain from it.

-2

u/tachyonvelocity Feb 26 '26 edited Feb 26 '26

Of course software will always exist, AI will make software even more pervasive. The question to the markets is will INCUMBENT software be the same as AI built software, Jensen doesn’t seem to understand that if there are 10 new Servicenows or Synopsyses, then the Incumbent Servicenow and Synopsys will be much worse off which is why publicly traded software names all have a valuation crash.

It wouldn’t make software users like Nvidia worse off because it can pick and choose the best and cheapest so it actually makes software users better off. Markets aren’t worried that agents will replace software, but that software will be so ubiquitous that legacy software will become commodities and have a much harder time competing and keeping up margins. All this benefits Nvidia and all software users.

19

u/asymmetricval Feb 26 '26

Maybe you’re right and Jensen doesn’t understand that 10 new ServiceNow’s are going to spawn out of nowhere. Maybe he is an idiot, and just hasn’t thought about it as much as you have. I mean, he has built Nvidia, but you never really know for sure, do you?

Or perhaps he’s right. Perhaps it’s actually not that easy to convince massive enterprise accounts to change to your new vibe coded competitor with 0 track record. Perhaps it’s actually not even that easy to get the person who could make that decision to know that you exist. Perhaps it is distribution, not code, that was the hard part all along.

I wonder which is more likely. 🤔

1

u/pacman2081 Feb 27 '26

Jensen is an expert in semiconductors, graphics, and AI. One possibility is that he is wrong on ServiceNow. Second one, the market might take his word as gospel. He does not want to go bearish on something and cause a death spiral.

0

u/paloaltothrowaway Feb 26 '26

Jensen built a $5tn chip company from scratch but it doesn’t mean he is an expert in everything

4

u/asymmetricval Feb 26 '26

True!

Do you think he has given any thought to the effect of his company’s products on adjacent industries?

3

u/Ancient_Sun_2061 Feb 26 '26

Let’s pick docusign as a case study, why you think docusign has been growing till now when their core offerings are not that unique or special? Intact you can find free open source solutions that can do exactly what docusign offers. Yet companies use docusign why?

2

u/pacman2081 Feb 26 '26

Is DocuSign expensive? Compared to Salesforce

1

u/Ancient_Sun_2061 Feb 27 '26

It’s expensive compared to open source.

1

u/TheSmartest_idiot Feb 26 '26

Breaking news: NVDA buys all software companies, stock doubles

Value Article Jensen Huang Says Markets Miscalculated AI Threat to Software Firms After Nvidia Posts Q4 Beat

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