When Earnings Rise but Valuations Fall

It feels contradictory, but it’s common: earnings can grow while valuations shrink.
Bank of America warns software stocks may face multiple compression even with rising profits. This isn’t a crash—it’s a quiet repricing.
Why this happens (fast):
Markets price disruption early
Netflix vs. Blockbuster: prices moved long before the obituary.
Earnings ≠ Valuation protection
Share dilution and higher capital needs can push multiples down even as profits rise.
AI changed the math
After ChatGPT, software went from premium to discount as expectations reset.
Asset-light is fading
AI infrastructure adds costs, compressing margins and making software look more “industrial.”
What still holds valuation:
Real pricing power
Defensible margins
Sticky customers (high switching costs)
Bottom line:
Valuations fall when expectations get rewritten—not when companies fail.
Before buying tech: are you paying for what exists, or what you hope will exist?
Your take: will major software names hold elevated valuations into 2025?