AI Growth Stocks: A Portfolio Manager’s Satirical Reflection

In the gilded halls of modern commerce, where technology reigns supreme, the Nasdaq Composite (^IXIC) has ascended to dizzying heights, propelled by the titanic forces of Nvidia and Microsoft. Yet, amidst this glittering ascent, two erstwhile luminaries-Salesforce (CRM) and Adobe (ADBE)-find themselves languishing, their shares down more than 20% year-to-date despite a 12% gain in the index. It is here, dear reader, that we pause to reflect on the peculiarities of artificial intelligence’s impact on the software-as-a-service (SaaS) business model-a tale of hubris, disruption, and perhaps, redemption.

The SaaS Model Under Siege

Artificial intelligence, that seductive sorceress of efficiency, promises to do more with less. Large language models (LLMs), conjured by the likes of OpenAI, Microsoft, Alphabet, and Meta Platforms, offer enterprises a new technological foundation. Salesforce and Adobe, once architects of their respective domains-customer relationship management (CRM) and creative design-now face an existential quandary. If users can accomplish more with fewer subscriptions, what becomes of the SaaS empire built upon ever-expanding user bases?

Worse still, the advent of AI has leveled the playing field. The once-unassailable moats of these giants are now mere puddles, easily circumnavigated by nimble upstarts like Canva and Figma. Salesforce must contend with Microsoft Dynamics 365, while Oracle’s Cloud CX platform looms as a formidable rival. One cannot help but marvel at the irony: the very innovation meant to empower these companies threatens to render them obsolete.

A Market Unmoved by Innovation

While Nvidia and Broadcom bask in the adulation of investors enamored with hardware and infrastructure, Salesforce and Adobe toil in relative obscurity. These latter firms are akin to automakers competing in a saturated market, while their rivals construct highways and sell vehicles simultaneously. And yet, they persist. Salesforce’s Agentforce lineup, anchored by Einstein, offers a suite of AI tools priced between $25 and $500 per user monthly. Adobe counters with its own arsenal: AI assistants for Acrobat, generative tools like Firefly, and Sensei’s predictive prowess.

Despite such feats of engineering, the market remains unmoved. Salesforce forecasts a modest 8% to 9% revenue growth for fiscal 2026, while Adobe projects a tepid 9.5% year-over-year increase. Their valiant efforts seem but whispers against the thunderous applause reserved for those who convert AI spending into tangible earnings.

A Fall from Grace-or Merely a Correction?

Salesforce and Adobe are not alone in their descent. Monday.com tumbled nearly 30% last week, while Palo Alto Networks, Autodesk, Datadog, Workday, ServiceNow, and Atlassian join the ranks of beleaguered application software stocks. Yet, there is a silver lining-or so the optimists would have us believe. With forward price-to-earnings ratios of 21.5 and 17.3 respectively, both companies trade below the S&P 500’s forward P/E of 23.3. Such metrics suggest that the sell-off may have overshot its mark.

Still, investing in these fallen angels requires conviction. One must believe that innovation will prevail over competition, that resilience will triumph over adversity. For every portfolio manager, the question lingers: Are these stocks bargains or warnings? Perhaps only time will tell, though one suspects that Mr. Waugh himself might have chuckled at the folly of it all 🫣.

2025-08-20 11:35

The SaaS Model Under Siege

A Market Unmoved by Innovation

A Fall from Grace-or Merely a Correction?

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