Jared Sleeper on Which Software Companies Will Survive the "SaaSpocalypse" - Odd Lots Recap
Podcast: Odd Lots
Published: 2026-02-19
Duration: 49 minutes
Guests: Jared Sleeper
Summary
The episode examines the challenges faced by software companies amid slowing growth and the threat of AI, with insights from investor Jared Sleeper on which companies might thrive in the long term.
What Happened
Jared Sleeper provides a deep dive into the current state of the software industry, highlighting the significant downturn in software company valuations, with key examples like Salesforce and Atlassian experiencing major stock price declines. He explains that while AI is exacerbating fears, the slowdown in growth began before the AI revolution, with median growth rates for software companies dropping from 40% in 2021 to 18% more recently.
Sleeper emphasizes the historical context, noting that software was once expensive to develop and maintain, which led to the rise of third-party developers. However, despite advancements in AI, understanding and managing existing software systems remains a human challenge, suggesting that companies offering more than just code, such as network effects and integrations, may have an edge.
The discussion touches on concerns about the commoditization of software, as AI capabilities expand. Some startups are achieving high gross margins by building on top of AI model vendors like OpenAI and Anthropic, but there's a risk if these core model makers move into application layers, potentially undercutting existing software providers.
Moreover, Sleeper points out inefficiencies in labor allocation, using DocuSign as an example, which has more employees than AI giants OpenAI and Anthropic combined. This reflects broader industry challenges in adapting to AI and cost pressures, potentially leading to layoffs and a reevaluation of roles within companies.
The conversation also explores how companies like Intercom are successfully integrating AI tools to reaccelerate their business. Intercom's AI product, Finn, is highlighted for significantly contributing to their ARR by automating customer support tasks, demonstrating a shift to results-based pricing models.
Finally, Sleeper discusses investor concerns about the terminal value of software companies in the AI era, with stock-based compensation being a real expense often undervalued by management. European investors are noted to be more cautious about this compared to their American counterparts, reflecting regional differences in investment strategies.
Key Insights
- Software company valuations are plummeting, with Salesforce and Atlassian experiencing significant stock declines. Despite fears around AI, the slowdown began earlier, as median growth rates for these companies fell from 40% in 2021 to 18% recently.
- AI's rise is leading to software commoditization, with startups leveraging AI models from vendors like OpenAI and Anthropic to achieve high margins. However, if these core model makers enter the application layer, existing software providers could be severely undercut.
- Intercom's AI product, Finn, is transforming customer support by automating tasks and boosting their ARR. This shift towards results-based pricing models marks a new phase of business acceleration through AI integration.
- DocuSign employs more people than AI giants OpenAI and Anthropic combined, highlighting inefficiencies in labor allocation. As companies struggle to adapt to AI and cost pressures, many may face layoffs and role reevaluations.
Key Questions Answered
How is AI affecting software companies like Salesforce?
AI is increasing anxiety across industries, including software, by potentially threatening roles that were traditionally human. Companies like Salesforce are facing declining growth rates and complex data management challenges that AI may further complicate.
What are the current stock performance trends for major software companies?
The stock prices of key software companies like Salesforce and Atlassian have seen substantial declines. Salesforce's share price has been halved, while Atlassian's stock has dropped significantly from $450 in 2021 to $86.
What role does stock-based compensation play in software companies' financial reporting?
Stock-based compensation is often treated as a non-GAAP expense, which can obscure the true financial health of software companies. European investors, in particular, are more concerned about this practice compared to their American counterparts.