Last week, I told you about Instinct. It’s the artificial intelligence (AI) assistant that recovered my family’s missing airline miles from one WhatsApp voice note.

A lot of you wrote in asking for an invitation. The bad news—you can’t download it anywhere; you need a direct invite from a user. The good news—Dan and I were allocated some invitations, and we’ll share as many as we can.

It’s first come, first served. RiskHedge Reserve gets priority, followed by other premium RiskHedge members. To request one, please reply to this email. 

You’ll need a mobile number to sign up. After that, you can use Instinct through WhatsApp, iMessage, or plain text messages.

I’m excited about Instinct because it shows where AI is heading. And it points to one of the biggest shifts in the stock market right now. Some of the most profitable businesses of the past 20 years are about to experience a total disruption of their lucrative tollbooth-like businesses.

• To see why, take a trip down memory lane with me to New York City in 2013.

Back then, the most valuable thing in Manhattan, ounce for ounce, was a six-ounce aluminum plate bolted to the hood of a yellow cab.

It was called a taxi medallion. The city strictly limited how many existed. If you wanted to pick up passengers on the street, you needed one.

So the price only went one way: up. Drivers borrowed hundreds of thousands of dollars to buy medallions. Owners treated them like retirement accounts. At the peak, a single medallion sold for more than $1 million.

Then Uber Technologies (UBER) showed up… Tap your phone, and a car comes to you.

By 2018, medallions were selling for less than $200,000. More than 80% of their value vanished in five years. Last year, the city put their value at between $90,000 and $200,000.

New Yorkers were taking about a million taxi and app rides a day. But the yellow cab’s share of those rides fell from about two-thirds to a quarter. Today, it’s 14%.

• Software has its own taxi medallion. 

It’s called “the seat”…

For 25 years, software companies have charged “per seat.” That’s a monthly fee for every person who logs in.

Salesforce (CRM) charges per user for the software that sales teams use to track customers. It was a beautiful model. Every time a customer hired more people, the software company got a raise.

Now picture a company with 100 salespeople. Each needs a software license that costs $100 a month. That’s $10,000 a month for the software maker.

Then AI agents show up. Suddenly, 30 people can do the work of 100. The company only needs 30 licenses. The bill drops 70%.

That’s the medallion problem. I’m convinced the world will use more software than ever. I now use Claude to write personalized learning apps for my kids. But the per-seat toll is going to collapse.

Wall Street has taken notice. It’s already marking down “the medallions” of software.

At the 2021 peak, the typical cloud software stock sold for about 18X sales. By February, that had fallen to 3X sales… the lowest in more than a decade.

Adobe (ADBE) is down 24% this year. HubSpot (HUBS) is down 36%. Meanwhile, the Nasdaq is up 19%.

• Claude maker Anthropic just reported $16 billion in quarterly revenue…

Salesforce, the king of business software for a quarter century, brought in $11.35 billion in its latest quarter.

This is the “Uber passing yellow cabs” moment.

Just five quarters ago, Anthropic was bringing in $787 million a quarter. Its revenue has grown 21-fold since then. 

Anthropic is reportedly planning to go public as soon as next month. It could be one of the biggest IPOs in history.

• Salesforce sees where the puck is going…

It sells its own AI agent, called Agentforce. And it charges by the task, not by the seat. 

Agentforce now brings in about $1.5 billion a year. Sounds like a lot… but it’s only about 3% of Salesforce’s sales.

For investors, the key question is: Can the new agentic business grow faster than the old one shrinks?

Some software companies will pull off that switch. Others will end up disrupted like Manhattan’s medallion owners.

• That’s why we created the Medallion Test…

It’s a simple four-question checklist to sort software winners from losers.

1. Does the company hold data AI can’t live without?

AI agents still need customer records, contracts, and order histories. The company that holds those records is hard to rip out. That’s Salesforce’s best defense.

2. Does it have a moat AI can’t cross?

Veeva Systems (VEEV) runs critical software for drug companies, one of the most heavily regulated businesses on Earth. Swapping it out is a nightmare. Veeva stock is up 33% this year.

3. Can it charge for work, not head count?

That’s the race Salesforce is running. We’ll track its AI revenue every quarter.

4. Does smarter AI make it stronger?

Shopify (SHOP) powers millions of online stores. Last month, it opened checkout to AI shopping agents across more than 2 million of them. The smarter AI agents get, the more they buy through Shopify. Its stock is trading near an all-time high.

Now compare Chegg (CHGG), the homework-help website. In 2023, it became the first public company to blame ChatGPT for a slowdown. Why pay for answers that AI gives away for free? Chegg stock is down more than 99% from its peak.

That’s why we run every software stock through the Medallion Test. It’s a theme we’ll talk a lot about over the coming weeks and months.

Stephen McBride

Chief Analyst, RiskHedge

PS: Paperback and hardcover copies of my book, Disruption Investing, are now available! If you’ve been waiting to get your hands on a printed copy, you can finally grab one for your bookshelf. And a big thank you to everyone who’s already read it. I appreciate your support!