Manuel Vargas Ferro @MOVF96: "THE DEATH CERTIFICATE OF SOFTWARE?..."

Colombia

THE DEATH CERTIFICATE OF SOFTWARE? A HISTORIC MISTAKE THE MARKET IS HANDING US The market often behaves like a teenager: it swings from total euphoria to deep depression in a matter of weeks. Today, that “depression” has zeroed in on software. The narrative says AI will replace code, that SaaS (Software as a Service) has lost its moat, and that multiples must compress into irrelevance. But as Jensen Huang rightly pointed out, the market is being irrational. Software isn’t dead; it’s simply evolving into the operating system of intelligence. If we step back and think clearly, AI is not some abstract entity floating in a vacuum. AI needs an interface, a workflow, and—above all—structured data to be useful. AI needs software to run; it’s not here to erase it. What we’re seeing is infrastructure (semiconductors) taking all the glory, while the application layers—the ones that actually touch the end customer—are trading at discounts that feel like they belong to another era. In my experience as a portfolio manager, the real opportunity emerges when price and value diverge out of sheer fear. Look at the Free Cash Flow (FCF) metrics of leading companies and the disconnect is striking. Businesses growing at double digits, with solid operating margins and recurring cash flows, are trading at EV/FCF multiples we haven’t seen in six or seven years. That’s what we call textbook margin of safety: buying predictable, recurring revenue streams at liquidation-like prices because the market is distracted by the latest technological “shiny object.” It’s critical to distinguish between horizontal software and vertical software (specialized in niches like healthcare or finance). Vertical software has a stickiness that generative AI alone simply cannot replicate. Software isn’t just code; it’s regulatory compliance, process integration, and the trust built on decades of accumulated data. Let’s be realistic: do we honestly believe a multinational corporation is going to unplug its SAP—the nervous system of its entire organization—to replace it with an AI startup that’s still figuring out how not to hallucinate accounting data? Replacing a core ERP or CRM is like a heart transplant; you don’t do it lightly, and certainly not for a technology that’s still maturing. What the market is overlooking is that these companies aren’t sitting around waiting to be disrupted. They’re deploying AI at record speed because they have the balance sheet to do it. SAP’s data point is telling: one out of every three new services they sell now includes clients explicitly requesting integrated AI tools. Software isn’t dying—it has superpowers now, and the players with the existing customer base have the edge. The hardest part is resisting the pull of crowd sentiment. Watching the software sector bleed red while hardware soars isn’t easy. But strategic patience means understanding that value always resurfaces. Historically low multiples in high-quality companies tend to be the prelude to strong returns for those willing to wait. Software is trading at levels we haven’t seen in years. While most investors either run from the red or get blinded by the green in semiconductors, few stop to notice that we’re looking at genuine discounts on cash-generating machines. Are you the kind of investor who panics when an entire sector hits multi-year lows—or can you see the cash flow behind the red screens the market is choosing to ignore? $TSLA (Tesla Motors, Inc.) $VOO (Vanguard S&P 500 ETF) $TSM (Taiwan Semiconductor Manufacturing Co Ltd - ADR) $GOOG (Alphabet) $MSFT (Microsoft)