Michael Burry Posts New Software Thesis: Which SAAS Stocks Show Promise As Per His ‘Castle, Stone, Chapel’ Matrix?

• Burry will analyze software stocks in a six-part series, the first of which focused on office software companies and was published last week.
• “The Big Short” investor has developed a proprietary metric for earnings and the threat from AI.
• Broadly, his thesis is that companies with heavy per-seat exposure or ties to disrupted SMBs face major risks, while a strong niche client base provides a protective moat.

In the first of an ongoing series of analyses on the software industry, noted investor Michael Burry highlighted Freshworks and Paycom Software as names he believes are fairly valued, relatively defensive against AI disruption, and supported by disciplined business operations.

Beyond those, Burry said Salesforce, ServiceNow, Paylocity, and Monday.com are showing promise, though he added that further price action and execution will determine whether they ultimately become attractive buying opportunities.

By contrast, he argued that Workday and HubSpot should be avoided altogether, citing what he sees as significant AI disruption risk and valuations that remain far above their intrinsic value.

Burry Ranks SAAS Stocks

Burry has ranked the so-called “office software” stocks on two metrics: a proprietary "owners’ earnings" framework, which strips out stock-based compensation (SBC) abuse and adjusts for uneconomic depreciation and amortization (D&A) policies, un-normalized tax rates, non-cancellable purchase obligations, and capital lease payments. 

The second is AI Competitive Threat (AICT), which categorizes companies into risk tiers (such as Castle, Stone, and Chapel) based on their vulnerability to native AI threats.

Broadly, his thesis is that companies with heavy per-seat exposure or those serving highly disrupted small-and-medium-sized businesses (SMBs) face acute headwind risks. Conversely, a strong "database-of-record" acts as a protective moat against these threats. 

Burry said he will analyze 46 software and payments stocks (the SW46) over a six-part series. Here is select commentary about the SAAS stocks he discussed in his latest blog:

Paycom Software (PAYC) - Strong Stone, almost Castle

Possesses a resilient moat through its database-of-record interfacing with regulatory agencies, which works in Paycom’s favor as a defense against AI threat.

Freshworks (FRSH) - Chapel

The Chapel rating reflects seat-loss exposure, which is partially offset by its internal AI initiatives and budget-friendly attacker stance. 

Monday.com (MNDY) - Stone

Its small-size customer base is highly vulnerable to replacement by horizontal agentic AI players, while severe "SBC abuse" destroys its capital-efficiency profile.

Salesforce (CRM) - Chapel

Faces acute AI-seat and replacement risk, exemplified by Klarna terminating its relationship. Meanwhile, its massive $50 billion buyback program is viewed as "essentially a wash" because the shares are being repurchased close to true intrinsic value.

Paylocity (PCTY) - Chapel

AI-era headcount reduction risks are meaningfully offset by a defensible database-of-record spanning thousands of tax jurisdictions.

ServiceNow (NOW) - Chapel

The business is actively on the attack and growing, but is strictly categorized as a "show-me story" before earning conviction.

HubSpot (HUBS) - Stone

Strongly avoided. It suffers from acute AI risk exposure because its core SMB customer base is heavily disrupted by AI.

Workday (WDAY) - Stone

Strongly avoided and ranked near the absolute bottom. Its legacy business model leaves it highly exposed to AI-driven seat loss, with added pressure after Klarna ended its contract.

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