---
type: "Topics"
locale: "en"
url: "https://longbridge.com/en/topics/41850527.md"
description: "Compression1. SpaceX went public last night, so there should be many people wanting to talk about it today. I won't discuss it then, and will continue to do some opportunity mining for everyone.2. Continuing to analyze the wrongly sold-off AI applications sector. I've mentioned before that stock price increases are mainly due to two factors: one is the expansion of valuation, and the other is profit growth.3. The reverse is the contraction of valuation and the reduction of profits.4. The software sector has fallen quite badly over the past period, it's the year with the lowest returns in the past 10 years, with a YTD return of -12%, second only to medical devices.5. The main drag on this big drop in software stocks is the contraction of valuation.6. Because investors are worried about the moat of SaaS software companies loosening and the loss of pricing power, they started to compress their valuation multiples. For example, compressing from the original 30x valuation to the current 20x, naturally causing the stock price to fall.7. With profits unchanged, a 1/3 contraction in valuation would cause the stock price to fall by 30%. This is the main reason.8. Under this expectation, the market believes the profits of software stocks will be greatly affected. In plain language: it won't be as profitable in the future as it is now. But is that the actual situation?9. No, it's not. Actually, the overall profits of software stocks this year are still rising. For such a high-market-cap sector, this profit increase is not low. You can check the above chart yourself, because originally it already had a growth rate of over 20%.10. If it has a 20% growth rate, and you increase it by another 5%, that's a 25% growth rate. Just think of it simply like that. Although cash flow adjustments and profit adjustments aren't exactly the same, this rough understanding is fine. Actually, if you calculate it, it would be even higher than 25%.11. This creates the typical divergence between expectations and reality we talked about. The market is saying, "I think you won't make money this year," but the reality is, "Not only did I meet my performance targets this year, I exceeded expectations."12. The market will recognize the opportunity in this sector at some point, and you can be the hunter who gets in early.13. When will it rise? Will it rise? No one knows. But the risk-reward ratio objectively exists.14. There is no such thing as a risk-free trade. A real trade is when you can clearly see its risks and are still willing to trade."
datetime: "2026-06-13T02:56:15.000Z"
locales:
  - [en](https://longbridge.com/en/topics/41850527.md)
  - [zh-CN](https://longbridge.com/zh-CN/topics/41850527.md)
  - [zh-HK](https://longbridge.com/zh-HK/topics/41850527.md)
author: "[鸿运777](https://longbridge.com/en/profiles/13852997.md)"
---

# Compression1. SpaceX went public last night, so th…


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