Many investors treat all companies as if they’re the same.

Over the last few days, software stocks have been selling off aggressively as new AI coding tools have shown dramatic improvements in capabilities. We think these coding tools are very much for real. And we agree these tools are highly disruptive to the software industry as a whole. But as we’ve been talking about in our internal meetings for over a year, there will be both big winners and big losers in software.
Right now, the market’s viewpoint is that there will only be losers. We think that’s misguided. We always think it helps to focus on company fundamentals, compare businesses directly, and avoid assuming companies in the same category are alike.
Investors often want broad participation, either for the market as a whole, or for individual segments of the market. But this misses a central point about competition. When companies go head-to-head, some will win and some will lose. The market treats those very differently over longer periods of time. But over shorter periods of time, companies in the same category often get treated the same.
We think Palantir is a big winner because they deliver great outcomes for their clients. 
We think ServiceNow is another winner for the same reason: they help companies get things done. Both prove their worth by delivering actual value. That’s why we own them.
So while many software companies will get disrupted as the cost to build software collapses, other software companies will be doing better than ever. In time, the market will make the same distinction. Whether that happens tomorrow, next week, or several months from now, is anyone’s guess, but we remain focused on owning the beneficiaries of disruption.
We think it’s hasty to treat all companies in the same category as if they’re the same.

Best regards,

Evan McGoff

Disclosure: Dock Street Asset Management, Inc. and/or our clients may own Palantir (PLTR) and ServiceNow (NOW). This article is not intended to be used as investment advice.