Here Comes Software (The Cestrian Circle Newsletter, No Paywall).
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It’s Good To Be Laughed At.
Alex King, CEO, Cestrian Capital Research, Inc.
Right now, anyone doing well in the market is likely to be long $QQQ, long chips whether via $SMH or $SOXX and/or individual stocks, and the unsuspecting will be spending their time mocking software investors.
This is very bullish for software investors. Because hardly anyone thinks independently of the crowd; so anyone making the big bucks from $INTC or $ARM right now was duly laughed at not so long ago.
Coming into Q1 earnings I believe we will see a real Sorting Hat operation between winners and losers in software. I’ve written a lot about this lately so just to recap, here is the setup in the sector as I see it.
Software Sentiment Is On The Floor
The average investor has been educated that enterprise software companies have no moat, because the cost of producing a line of code was just deflated by 10x or more. Anyone who has held software from the highs in 2025 to the lows in March has been hit by a hurricane of dot-com-crisis proportions.
Some Of The Misery Is Justified
Not all software stocks are going to make it back. The tech industry is defined by its tectonic shifts, which happen every decade or so. SaaS companies got their start in 2004 with the $CRM IPO and did well amongst specialist investors until around 2014-15, then absolutely mooned as generalists began to understand the economics of the model and bid up multiples until 2025.
Not all SaaS companies do have moats; not all are perpetual cash generators; and not all can sustain their capital structures.
(If you search the stories about the Medallia loan-to-own whereby the equity sponsor was wiped out, the sheer glee is remarkable. This is another bullish signal for software in my view. Bull runs are born from mockery.)
CEOs: How To Win At Software
This is your task list if you are the CEO of an enterprise software company with an all-beaten-up stock that investors are embarrassed to say they own.
- Have a genuine and clear understanding of the source of resilience of the revenue line. Is it from a regulated industry sector per $VEEV? Embedded workflows per $NOW? What?
- Have your CFO do a zero-day budgeting exercise, as in: you see this here coffee mug, do I need it? No? Then sell it. The thousands and thousands of staff I have hired in the last five years, do I need them all? No? You say I can RIF fully 30% of them and nothing bad will happen? Then RIF them.
- Truly, genuinely replace as many internal and customer-facing workflows as you can with agentic tools. Not agent-washing but true Claudemaxxing. You need to view every process as automated unless it really, truly needs humans in the loop. And re-visit every six months what can be automated, because the speed of improvement in agentic AI blows me away, and I am a longtime technology investor who has seen a lot.
- Communicate, communicate, communicate to the market exactly what you have automated and how and why, what $/yr of cash cost savings that got you, explain that your gross margins will drop because tokens are expensive but you will more than make up for that with lower staff cost opex, and remember to tell your investors, the market, CNBC, hell Jim Cramer, anyone, that you will be paying a lot less stock based comp going forward because tokens only cost dollars, not stock. And then even a chump sellsider can work out that (i) net income and cashflow will grow quickly and (ii) EPS will grow even faster, because the E will be up and the S will be down, or at least the S won’t rise as fast as it has been.
- BUY SOME STOCK WITH YOUR OWN MONEY. The poster child for this is Jeff Green at $TTD with a $150MM open market buy, yes you read that right. Then you have Nikesh Arora at $PANW with a $10MM buy and Bill McDermott at $NOW with a smaller but still useful check. There are still not so many CEO buys in the market right now. If you want one single leading indicator of which names to back in this possible redemption arc … it’s the CEO buys. I own all three of these names and my confidence is bolstered hugely by those checks. Especially El Jeff.
The Best Software Stocks Have Already Bottomed
I think that the lows are in for $NOW and $TTD, and if I’m wrong, a stop a little below the lows will prevent any major pain.
$TTD, for instance, had already given up over 80% of all the gains it had achieved since IPO.
Zooming in, the stock is now pushing up at the 50-day SMA from below. The stock is up 22% from the lows and is holding nicely over its 21-day EMA.
$NOW made a nice run up from its lows, hit its head on the 50-day into earnings, sold off, but put in a higher low and is now on the climb once more.
Think For Yourself
Embrace the mockery. Use it as fuel. Use a stop to keep yourself safe in case there are new lows ahead, but don’t fear a small loss if you have an eye on big gains in software.
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Alex King
Cestrian Capital Research, Inc - 24 April 2026.