Software companies are stuck between a rock and a hard place right now. And watching how the market responds is revealing exactly where the opportunity lies. 

The Problem 

AI has arrived, and SaaS companies must spend heavily to build AI into their products. If they don’t, their competitive moats erode and they become irrelevant. Simple as that. “Not in my dojo,” as they say. 

But here’s the catch: this stuff takes time. I’m talking several quarters, maybe years, before you see real progress in their numbers. They need to figure out new revenue models. 

The whole chain plays out slowly—AI Implementation → Productivity → Employment impact → AI Revenue. 

Meanwhile, the CapEx bill shows up immediately. 

Has the Market Lost Its Mind? 

What really gets me is how differently the market treats identical situations. 

Hyperscalers announce massive data center buildouts? The market loves it. No questions asked. No need to prove anything. Just “we’re spending billions on infrastructure” and investors applaud. 

But when SaaS companies invest in AI? Suddenly the market demands proof—yesterday. Show us the revenue growth. Show us the margin expansion. Prove it’s working right now. 

The market is essentially saying: “We’re skeptical AI is going to help your business, but we’re certain everyone needs more capacity to figure that out.” 

Makes no sense. But that’s exactly where the opportunity is. 

What I’m Looking For 

I favor companies willing to sacrifice margins today for positioning tomorrow. The ones investing aggressively in users, revenues, and market share—even though the execution risk is high. 

Look, moats don’t maintain themselves. As new technologies emerge, you either test and strengthen your defenses or you die. There’s no middle ground. 

Not every company can afford to be a “fast follower” like Apple. Very few have moats strong enough to wait and see what everyone else does. For most companies, “fast follower” just means “falling behind.” 

Right now, investors are so worried about AI bubbles that they’re shooting first and asking questions later. Any company that mentions heavy AI spending gets punished. This knee-jerk reaction—treating all AI investment the same way—creates the mispricings I can exploit. 

Why I Like META Here 

Take Meta. They’ve been hammered recently for aggressive AI spending compared to their Mag7 peers. But I’d much rather own META than a hyperscaler. 

Here’s why: 

Meta’s AI spending enhances and accelerates their own business. They’re building for themselves. Hyperscalers? Their growth depends on other companies’ demand. 

When the music stops—and it always does—who’s really exposed? 

Meta can pull back spending any time their returns start declining. I’ve watched them do it before. That spending drops straight to the bottom line immediately. 

But for hyperscalers, their customers decide when the party’s over. When demand dries up, the revenue disappears—and they’re left holding billions in infrastructure capacity nobody wants. 

The Inflection Point 

SaaS is at a real inflection point. These companies are making massive bets with uncertain near-term payoffs. The market is treating them inconsistently—celebrating infrastructure while punishing software investment. 

That creates exactly what I look for: documented transitions that stay mispriced because most investors can’t or won’t act early. 

The companies investing aggressively in AI today, despite the market beating them up, are building the sustainable advantages of tomorrow. My job is separating the ones making real strategic investments from the ones just chasing the narrative. 

I’m not here for momentum trades. I’m looking for actual growth inflections. And right now, this SaaS AI situation is creating plenty of both—you just need to know which is which. 

IMPORTANT DISCLOSURES: 

The Validex Global Growth strategy and the Destra Multi-Alternative Fund that is sub-advised by Validus invest in META. 

Securities highlighted or discussed in this blog have been selected to illustrate Validex’s investment approach and/or market outlook and are not intended to represent any strategy or portfolio performance or be an indicator for how strategy or portfolio have performed or may perform in the future. Each security discussed in this blog has been selected solely for this purpose and has not been selected on the basis of performance or any performance-related criteria. The securities discussed herein do not represent an entire portfolio and, in aggregate, may only represent a small percentage of a strategy or portfolio holdings. The strategies and portfolios are actively managed, and securities discussed in this blog may or may not be held in such strategies or portfolios at any given time. These individual securities do not represent all the securities purchased, sold, or recommended and the reader should not assume that investments in the securities identified and discussed were or will be profitable. Nothing in this blog shall constitute a recommendation or endorsement to buy or sell any security or other financial instrument referenced in this letter. 

Validus Growth Investors, LLC, dba Validex Global Investing (Validex or VGI) seeks to invest in companies at every stage of their growth. From startups to publicly traded companies, our research identifies inflection points that have the potential to produce meaningful growth and income for the clients we serve. 

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