Market Valuations Reflect Past Trends as Peel Hunt Analyzes Software Dynamics
The Sage Group PLC (LSE:SGE), Craneware PLC (AIM:CRW), and Cerillion PLC (AIM:CER) are currently trading at valuations reminiscent of the 2010 to 2014 period.
Peel Hunt’s latest thematic research asserts that this market sentiment is conflating distinct entities: coding and software.
Entitled “Code is dead, long live software,” this incisive research note from the broker’s AI division contends that the recent decline in software stocks—termed the SaaSpocalypse—stemmed from misguided reasoning.
The rationale posits that as AI generates code and code constitutes software, software itself is rendered obsolete. Peel Hunt contends that this viewpoint conflates the medium with the moat.
Misunderstandings Behind the Sell-off
Peel Hunt argues that AI is commodifying coding—not undermining the long-established workflow, regulatory intricacies, and institutional confidence that form the foundation of B2B software.
A parallel is drawn with the field of radiology; in 2016, Geoffrey Hinton envisaged a downturn for radiologists due to AI-enhanced image analysis.
Conversely, the number of radiologists increased as automation alleviated time previously consumed by administrative duties. Similar trends are anticipated for the software sector.
The analysis references Jevons’ paradox: every decrease in software development costs correlates with an increase in software creation, not a decline.
The last decade’s growth was fueled by offshoring and cloud technologies that reduced production costs.
The advent of AI-driven developer productivity is poised to be the subsequent catalyst, expanding a software market valued at over one trillion dollars into a labor market exceeding sixty-five trillion dollars.
Highlighted Stock Recommendations
Peel Hunt identifies five UK-listed stocks as noteworthy beneficiaries, all receiving a Buy rating. Sage, known for its accounting software, merits recognition for achieving a remarkable 102% renewal rate and an 11% increase in annual recurring revenue during its first-half results.
Cerillion, specializing in telecombilling, stands to gain from the consolidation of competitors such as Amdocs and NEC-Netcracker, which Peel Hunt identifies as leading to a market contraction for some vendors.
Craneware is regarded as an indispensable component of hospital revenue-cycle management—an area where Peel Hunt asserts that AI cannot substitute for the two decades of compliance experience required.
Softcat and Bytes, recognized as value-added resellers, complete the list as they capitalize on the complexities introduced by AI-driven procurement.
Peel Hunt emphasizes execution over technological advancements, suggesting even Anthropic—one of the leading AI enterprises—operates on Workday Financials, Salesforce, and MuleSoft to optimize its own growth.
This observation underscores the enduring relevance of established software in the current landscape. The broker estimates that incumbents have a two to three-year window to adapt before AI-native competitors begin to catch up.
Interestingly, the report refrains from presenting a detailed stock assessment against its own criteria concerning moat quality, pricing readiness, and execution effectiveness.
Such an analysis remains not for public consumption, aimed instead at institutional clients in direct meetings, underscoring the notion that profound insights often elude algorithmic interpretation.
Source link: Proactiveinvestors.com.au.
