The landscape has shifted dramatically. Recently, the U.S. stock market's software and services sector has experienced a collective downturn. Two former high-fliers from the cloud computing boom of 2021, Zoom Video Communications and Snowflake, have seen their fortunes reverse sharply.

Video conferencing company Zoom once saw its stock price reach a high of $588 per share in 2021. It now trades around $95 per share, a decline of over 80% from its peak. In 2024, the stock fell as low as $55 per share, representing a staggering 90% drop from its all-time high. While the company has demonstrated genuine growth over the past four years, the market now views Zoom as an ordinary company. A significant compression in its valuation has been the primary driver behind this dramatic stock price collapse.

Similarly, cloud-computing darling Snowflake has also fallen from grace. Snowflake went public in 2020 at $120 per share and reached a record high of $429 per share in 2021. In 2024, its stock price plummeted to a low of $107 per share, a 75% decline from its peak. Despite a rebound lasting over a year, the stock remains approximately 60% below its highest point. Although Snowflake's sales revenue has increased twelvefold over the past four years, the company has never turned a profit, and its losses have continued to widen.

In stark contrast, many traditional companies have reached new all-time highs over the past five years. These include Walmart, Procter & Gamble, Philip Morris, Bank of America, ExxonMobil, ConocoPhillips, and Deere & Company.

The trend suggests that the most hyped emerging companies rarely become the next Microsoft, while once-overlooked traditional stocks often demonstrate steady appreciation. This narrative frequently repeats in capital markets. Time is the ultimate judge. From a long-term perspective, what to buy and at what price remain the two most critical questions for any investor.

**Valuation Collapse and Widening Losses**

Zoom's operational performance has not been disappointing. At its IPO in 2019, Zoom reported revenue of $622.7 million and earnings per share (EPS) of $0.09. By 2024, its revenue had grown to $4.665 billion, a 6.5-fold increase, while its EPS surged to $3.28, a 35-fold increase.

However, its valuation has contracted violently as the market now categorizes Zoom as a standard company. When Zoom's stock hit $588 in 2021, its corresponding EPS was $2.37, resulting in a sky-high price-to-earnings (P/E) ratio of 238. The stock now trades at a P/E ratio of just 17. Despite significant growth, the market's perception has fundamentally changed.

Since its IPO, Snowflake has achieved steady revenue growth, but its financial losses have ballooned. In the fiscal year preceding its 2020 IPO, Snowflake's revenue was $264.7 million. By 2024, its revenue had grown to $3.626 billion, a 12.7-fold increase. However, the company's net loss has expanded significantly, from $348.5 million in 2019 to $1.286 billion in 2024.

During 2020 and 2021, cloud computing companies were the dominant narrative in capital markets. SaaS (Software as a Service) refers to a model delivering software functionality via the internet, allowing users to subscribe on-demand without local installation, accessing services based on service-level agreements. This model shifted corporate software spending from capital expenditure to operational expenditure, supporting pay-as-you-go subscriptions and differentiated pricing strategies.

Within a few years, the former disruptors have become the challenged. This year, the U.S. software and services sector has continued to decline, with even giants like Oracle and Microsoft falling over 15%, while smaller companies have dropped nearly 40%. Investors are beginning to question if "software is dead," as artificial intelligence (AI) may squeeze the pricing power of software firms. The software industry's growth over the past decade relied on SaaS subscription revenue expansion and the proliferation of basic automation services. The rapid iteration of generative AI is directly disrupting this traditional business model.

**The Two Core Investment Questions**

Zoom and Snowflake were far from obscure; they were phenomenal companies in the capital markets. Zoom was the fourth-largest U.S. IPO by market cap in 2019, and Snowflake was the largest in 2020. Their public debuts attracted significant attention from U.S. media and became hot topics in Chinese financial press, spurring rallies in comparable A-share and Hong Kong-listed stocks.

Although Zoom achieved real growth in recent years, its industry prospects have dimmed due to intense competition and its newfound status as a potential disruption target, causing its P/E ratio to plummet from over 200 to 17. Meanwhile, Snowflake has consistently failed to achieve profitability. Notably, Berkshire Hathaway, led by Warren Buffett, liquidated its entire position in Snowflake in the second quarter of 2024. Buffett participated in the IPO at the offering price, and by the time of the sale, the stock had fallen back near that price, suggesting the holding resulted in minimal profit or even a small loss over the four-year period.

It is noteworthy that traditional companies in sectors like energy and consumer staples, such as ConocoPhillips, Procter & Gamble, Walmart, and Coca-Cola, have repeatedly hit new stock price highs over the past five years.

For instance, ConocoPhillips fell 36% in 2020, with its stock hitting a low of $20.84. However, the company paid a dividend of $1.95 per share in 2021, representing a dynamic dividend yield of 9.36%. In 2022, its total dividend per share (including special dividends) reached $4.99. From its low point, ConocoPhillips' stock price has surged nearly fivefold over the past five-plus years.

The Davis family created a miracle in investment history, with the "Davis Dynasty" wealth lasting over a century, built on time-tested principles and formulas. Shelby Davis, the second-generation heir, once stated that investing is not as complex as some believe. It is about deploying capital today in the hope of greater returns tomorrow, ultimately boiling down to two questions: which companies to buy, and what price to pay.

A key tenet of the Davis philosophy was to never overpay. They advocated buying growth stocks at reasonable prices, specifically companies with P/E ratios below 15 and growth rates between 7% and 15%. The strategy relied on the "Davis Double Play"—earning returns from both earnings growth and P/E multiple expansion—rather than betting on speculative hot stocks. Notably, the Davis family historically avoided technology stocks, believing that even at reasonable valuations, tech companies were susceptible to disruption and faced uncertain future profitability.