Can Software’s Dominance Continue?
Why The Software Industry Tends To Be Winner Take All
Opinions are my own and not intended to be investment advice.
As I was doing research on another post, I was struck by just how much the tech sector has outperformed some of the other S&P 500 sectors:
Imagine being long tech and short energy, what a trade! But that’s hindsight. A more relevant question going forward is whether the tech sector can continue outperforming like it has or will its returns relative to the broader market come back to earth at least a little?
This is a multi-faceted question and over a long period of time valuations (and the expectations implied by those valuations) matter too. But today we will examine a more strategic question:
Why do software companies tend to be winner take all?
In other words, why do the various niches of the software industry tend towards economic moats that massively strengthen the dominant players at the expense of their competitors?
