1 00:00:00,040 --> 00:00:04,840 Speaker 1: Milford Asset Management Luke. Michael Luke is with US high Michael, Hey, ever, 2 00:00:04,960 --> 00:00:05,400 Speaker 1: how's it goin? 3 00:00:05,640 --> 00:00:05,680 Speaker 2: You? 4 00:00:05,840 --> 00:00:07,480 Speaker 1: Very good? Thank you? I see the software shares have 5 00:00:07,520 --> 00:00:09,879 Speaker 1: been hammered overnight in the US and then locally today. 6 00:00:09,880 --> 00:00:10,720 Speaker 1: What's been going on? 7 00:00:11,560 --> 00:00:13,600 Speaker 2: Yeah, it's been a tough day and a month really 8 00:00:13,680 --> 00:00:17,720 Speaker 2: for the software sector. Now. The falls today follow and Throperk, 9 00:00:17,840 --> 00:00:22,040 Speaker 2: the company behind the AI model, claud releasing new AI tools, 10 00:00:22,079 --> 00:00:25,560 Speaker 2: including a legal plug and aimed at automating some legal work. 11 00:00:26,040 --> 00:00:28,680 Speaker 2: They saw companies like Thompson Reuter's, which is a major 12 00:00:28,760 --> 00:00:33,159 Speaker 2: legal software provider, fall fifteen percent overnight. All other software 13 00:00:33,200 --> 00:00:37,159 Speaker 2: companies like Salesforce selves foul seven percent, and locally we 14 00:00:37,159 --> 00:00:40,680 Speaker 2: weren't spared either of zero share price falling fifteen percent today, 15 00:00:41,280 --> 00:00:43,360 Speaker 2: the share price of many of these software companies have 16 00:00:43,440 --> 00:00:45,960 Speaker 2: now fallen up to forty percent over the past few months, 17 00:00:46,360 --> 00:00:47,680 Speaker 2: which is a pretty staggering move. 18 00:00:47,760 --> 00:00:51,160 Speaker 1: Really, why is it that the software companies have fallen 19 00:00:51,200 --> 00:00:53,240 Speaker 1: so much recently? Because I thought AI was supposed to 20 00:00:53,240 --> 00:00:54,280 Speaker 1: be good for these businesses. 21 00:00:55,360 --> 00:00:58,080 Speaker 2: Yeah, there's a really interesting shift that we've seen in 22 00:00:58,120 --> 00:01:01,920 Speaker 2: an investor sentiments where many of these software companies were 23 00:01:01,920 --> 00:01:05,200 Speaker 2: actually meant to be AI beneficiaries, using AI to make 24 00:01:05,240 --> 00:01:08,160 Speaker 2: writing code cheaper as well as selling new features to 25 00:01:08,200 --> 00:01:11,440 Speaker 2: their customers. Well, now they're directly in the firing line 26 00:01:11,760 --> 00:01:14,800 Speaker 2: where there's a big growing debate over whether AI coding 27 00:01:14,800 --> 00:01:19,240 Speaker 2: assistance like calord code will actually disrupt software and actually 28 00:01:19,400 --> 00:01:23,560 Speaker 2: enable new competitors, including potentially allowing companies to write their 29 00:01:23,560 --> 00:01:27,400 Speaker 2: own software internally instead of buying it from existing providers. 30 00:01:27,920 --> 00:01:30,800 Speaker 2: So the narrative is completely flipped from software companies being 31 00:01:30,800 --> 00:01:33,560 Speaker 2: a beneficiary to now being potential victims. 32 00:01:34,160 --> 00:01:36,920 Speaker 1: Do you think AI will actually disrupt these software businesses? 33 00:01:37,959 --> 00:01:39,880 Speaker 2: Lurk Well, I think a big part of the reason 34 00:01:39,920 --> 00:01:42,920 Speaker 2: these software companies have fallen so much is that it's 35 00:01:42,959 --> 00:01:47,360 Speaker 2: actually a really hard narrative to completely disprove, where the 36 00:01:47,480 --> 00:01:49,800 Speaker 2: question is how good are these AI tools going to 37 00:01:49,840 --> 00:01:53,440 Speaker 2: be in the future, and protecting the future is hard. Now. 38 00:01:53,520 --> 00:01:55,880 Speaker 2: Some of these software companies were also trading at very 39 00:01:55,960 --> 00:01:59,720 Speaker 2: high valuations previously, so they will be impacted by changes 40 00:02:00,360 --> 00:02:03,240 Speaker 2: growth assumptions. But there are a few things that are 41 00:02:03,400 --> 00:02:07,080 Speaker 2: aware remembering. Firstly, when you're buying software from the likes 42 00:02:07,080 --> 00:02:10,480 Speaker 2: of a zero or salesforce, you're not just buying the code. 43 00:02:10,840 --> 00:02:12,840 Speaker 2: You're getting a company to make it run for you, 44 00:02:12,919 --> 00:02:16,919 Speaker 2: stay updated, maintain high security, and often deliver a number 45 00:02:16,960 --> 00:02:20,480 Speaker 2: of data integrations and compliance features which can be really 46 00:02:20,520 --> 00:02:24,639 Speaker 2: difficult to replicate. Secondly, it can also be very painful 47 00:02:24,639 --> 00:02:27,640 Speaker 2: to switch software providers when it comes to moving all 48 00:02:27,639 --> 00:02:31,280 Speaker 2: your data, your workflows, your customer integrations, as well as 49 00:02:31,360 --> 00:02:33,720 Speaker 2: learning to use a new system. So there has to 50 00:02:33,760 --> 00:02:36,959 Speaker 2: be a really compelling reason to shift if you're existing 51 00:02:37,080 --> 00:02:40,160 Speaker 2: software is working pretty well and not breaking the bank. 52 00:02:40,600 --> 00:02:43,520 Speaker 2: That said, these tools like Claude will keep getting better 53 00:02:43,800 --> 00:02:46,040 Speaker 2: and could enable more competition over time. 54 00:02:46,520 --> 00:02:49,240 Speaker 1: Now, is this do you think than a buying opportunity? 55 00:02:50,240 --> 00:02:53,160 Speaker 2: That's the big question. And we have seen a big 56 00:02:53,200 --> 00:02:56,519 Speaker 2: reaction and likely a very big over reaction for a 57 00:02:56,600 --> 00:02:59,000 Speaker 2: number of companies out there. So there will be some 58 00:02:59,040 --> 00:03:02,600 Speaker 2: great opportunity, but investors there need to be selective as 59 00:03:02,639 --> 00:03:05,839 Speaker 2: there likely will be some companies disrupted, even if it's 60 00:03:05,919 --> 00:03:08,520 Speaker 2: just as slow down and growth, and we've seen pretty 61 00:03:08,600 --> 00:03:12,200 Speaker 2: large negative share price reactions to recent software company results 62 00:03:12,720 --> 00:03:17,560 Speaker 2: like Microsoft and SAP with growth missed investor expectations. So 63 00:03:17,600 --> 00:03:19,919 Speaker 2: it's all about finding the right investment where the shear 64 00:03:20,000 --> 00:03:23,200 Speaker 2: marketers may be overreacted to the risks of AI disruption 65 00:03:23,880 --> 00:03:26,280 Speaker 2: or trying to avoid those companies where they actually are 66 00:03:26,360 --> 00:03:29,399 Speaker 2: really risks and maybe those risks are still underpriced. 67 00:03:30,000 --> 00:03:31,520 Speaker 1: Michael, it's good to talk to you. Thanks for running 68 00:03:31,560 --> 00:03:33,840 Speaker 1: us through at Michael Luke Milford Asset Management. 69 00:03:34,440 --> 00:03:37,600 Speaker 2: For more from Hither Duplessy Allen Drive, listen live to 70 00:03:37,720 --> 00:03:40,720 Speaker 2: news talks it'd be from four pm weekdays, or follow 71 00:03:40,760 --> 00:03:42,560 Speaker 2: the podcast on iHeartRadio.