r/valueinvesting
Why the SaaS crash is a massive gift (The Peter Lynch Play)
SaaS crash is a buying gift; upcoming earnings will clarify AI impact, and year-end tax-loss selling may cause further irrational drops.
- Upcoming earnings will reveal if AI is amplifying SaaS businesses rather than disrupting them.
- Year-end tax-loss harvesting by institutions could cause irrational price drops, creating a buying opportunity.
- Solid underlying fundamentals of SaaS giants make the current crash a massive gift for long-term investors.
- AI might actually be disrupting these SaaS companies and causing long-term business decline.
- Stock prices could continue to drop in Q4 due to aggressive tax-loss selling, regardless of good earnings.
SaaS giants like INTU, ADBE, CRM, NOW and others are down big. I’ve already started building positions in a few of these, and honestly, I’m happy to see the prices fall even further as long as the underlying numbers stay solid.
But the next 6 months are a huge opportunity for long-term investors. Here is why:
- The next 2 earnings will show the truth: Everyone is panicking about AI. These next two earnings reports will finally show us the reality, whether AI is actually disrupting these companies and causing them to decline, or if it's amplifying their business while they continue beating estimates.
- The Peter Lynch Tax Dump: Even if these companies smash earnings, expect their stock prices to drop even lower later this year. Peter Lynch always pointed out that in Q4, both big hedge funds and individual investors aggressively dump their losing stocks. They do this for "tax-loss harvesting" - selling their losers before the end of the year to offset the taxes they owe on their winning trades. When everyone rushes for the exit at the same time just for a tax write-off, it forces stock prices.
The Bottom Line: We are about to see if these fundamentals are actually intact. If the upcoming earnings show these businesses are not disrupted and are still beating estimates, but we still see a price crash in November-December because of tax-loss selling, it is an absolute gift to long-term investors
there’s menial tasks all the time. updating terraform, refactoring code, updating a readme, writing basic unit tests, etc. it’s been pretty nice to just ask claude cut a pr for a small task and it do it for me while I work on harder problems.
I find that's not true. I'm automating the creative things too, Claude makes decent decisions most of the time and I only intervene when it's wrong.
I'm a strong believer that AI will not disrupt SaaS at all.
But the thing is ADBE was a bad stock and a bad company before AI, I would not invest in it.
the thing is tho. majority of people in a company do menial b.s tasks. Becky basically only makes excel sheets and sends mails.
Yes I mentioned this in another reply. I don't believe the AI productivity boost scales to the whole organization. If I work too fast I just create a backlog... it requires structural change and likely layoffs to get past that.
The keyword here is DECADE. Most SaaS should be priced now below 10 PE or they are still overpriced.
10x is an understatement for me
Not me personally as I no longer code for living, but others in my firm are very productive on two fronts - new features and retiring tech debt. Maintenance is what they are working out. We already have almost 5K devs on it and more will be onboarded.
I think the threat is for body-shop consulting firms and all those MSPs need to figure out their new revenue model
I sold at 269, did TLH and bought MU at 992. Sold MU at 1225 today. Covered half my loses on INTU already. One more trade and I will be net positive. I ain't married to a stock.
I don't want to imply that AI hasn't led to rapid productivity improvements. It has. I just think that expectations are misaligned with reality. There seems to be this notion that AI is or will soon be autonomous, that it's somehow capable of critical thinking or judgment, and doing things on its own (replacing humans, replacing purpose-built software). IME it has terrible judgment. In the software world it's great for coding. If you're not using it, you should. It has a lot of uses beyond coding. But it's designed to do a task and nothing more. With investments like RAG, agentic flows, context engineering, custom training, etc., it can do so much. But those investments are not one time. They are ongoing. And if you shift investments from traditional to AI, what's the net productivity gain?
Depends on what you do. Not everything in SW is a CRUD web app. It's just the most visible.
It seems like 99 percent of people think AI is only good for crud apps and simple things. I found the hard things is precisely where it's more useful, it's very smart, like a supercharged senior.
OP isn't talking about software engineer productivity. This is organizational change productivity and I can positively say from my experience that while the new shiny object has a lot of promise, exiting existing ERP and ERP lite enterprise systems for a hope and a dream isn't happening any time soon.
You keep suggesting that the AI written code is worse.
And AI can simulate ownership and authorship, just like it simulates writing code.