Atoms vs Bits

Introduction Capital is rotating out of bits and into atoms. Software companies, the darlings of the last decade, are being forced to answer a question they’ve never had to answer before: what happens to your 30x revenue multiple when new technology poses a potentially existential threat? See, for many of these companies, valuations were so high and such sustained growth was priced in that agentic AI didn’t even need to actually impact the business. The threat of a threat was enough to reprice them. Into this software selloff, anything that wasn’t nailed down was thrown overboard.

Vertical SaaS, digital advertising platforms, portions of fintech, all suddenly trading at discounts to their historical ranges as the market begins to assign what I’d call an “AI Disruption Discount”. Does your high switching cost or sticky UX matter in the AI era? Don’t know? Okay - trade lower until you do. Will agentic commerce threaten your marketplace? Maybe? Okay, well, you’re worth 30% less. The logic is ruthless and correct: none of us really know what AI will look like in a few years, and the technology is advancing at a rate that has us asking if the singularity actually just got penciled in for next Thursday.

Agentic AI was a talking point for investors, but once Anthropic et al. shoved it in their face they had to reconcile with some hard potential realities that didn’t align with their portfolio. We could spend a lot of time debating what moats will endure in software – do we just sell anything you click and buy the dip in the APIs? Is this just empowering new entrants to challenge incumbents or will enterprises bring entire software workflows in house via AI? The more you think about it, the more you realize that without a crystal ball you’ve got a lot more questions than answers.