digest
Short Summary
Main recommendation: Tyler Rocky, co-head of software equity research, sees software names as a buying opportunity after the AI-driven selloff, favoring companies that can show measurable AI return on investment, such as Microsoft, Palantir, and Snowflake. He argues the key question is whether AI can deliver useful day-to-day value for enterprises and consumers over the next three to five years, not just next quarter. He also flags that the selloff was driven by fears that AI coding agents let companies build their own software, which threatens existing software vendors.
Key Points
- The selloff was driven by concern that AI growth, including from frontier-model firms like Anthropic, comes at the expense of existing software, since coding agents let companies build their own applications faster.
- Part of the recent software rebound came from short covering, but short interest remains high; some names moved from roughly 21 to 24 percent short interest down to about 16 to 17 percent, and Rocky says short interest has become less useful as a conviction signal.
- The longer-term debate centers on whether AI can do useful work day to day, not whether models can solve advanced math or science problems.
- Investors are shifting focus from AI adoption metrics to return on investment and measurable enterprise outcomes, with Microsoft cited as already making money from AI.
- Rocky argues the names he favors are not legacy software: they are growing revenue over 20 percent and benefit when customers adopt AI.
Details Worth Noting
- Concrete instructions: The video gives no step-by-step method for investors. The actionable guidance is to evaluate software companies on AI return on investment and measurable enterprise outcomes, to treat short interest as a weaker signal than before, and to view MongoDB's sell-off-driven weakness as a buying opportunity if its business is accelerating and well positioned on AI.
- MongoDB: a recent report said the CEO was a flight risk; the CEO was previously hired from ServiceNow, Cloudflare, and MongoDB. Rocky's team views the stock as a good buy, though it carries an aggressive price target, and the question is whether the company can meet its debt payments and fund large simultaneous expenditures.
- Oracle: ahead of its investor day at the end of October, Rocky says the team sees strong execution, including nearly a gigawatt of new data center capacity in a quarter, and expects earnings and revenue growth above 30 percent. Volatility in these names has been high.
- Consolidation: Rocky sees M&A as a real possibility with attractive valuations, but notes private equity exits have been harder, especially as rates rise.
- Upside: one unnamed-in-transcript name is cited by Rocky's team and by Oppenheimer, with almost 100 percent upside if the thesis plays out.
Bottom Line
The selloff reflects fear that AI makes existing software easier to replace, but Rocky sees opportunity in software firms that are growing fast and monetizing AI, with the real test being measurable enterprise returns in the coming years.
