Software stocks have taken a significant hit, largely due to growing concerns over the rapid proliferation of artificial intelligence (AI) technologies. This unease among investors has led to a notable decline in traditional software and Software-as-a-Service (SaaS) providers, allowing some savvy investors to identify potential opportunities for strategic buying.
Anthropic, an AI start-up, recently launched its Claude Cowork AI agent, aimed at automating everyday tasks such as file searching, assembling, and organization. Last week, the company introduced plug-ins designed to enhance user experience across various sectors, including legal, sales, finance, marketing, and customer support. However, the excitement surrounding these advancements has been overshadowed by fears that these new tools could disrupt established software solutions, causing many investors to panic and trigger a sell-off. The S&P North American Technology Software Index—which tracks over 100 software stocks—has now entered bear market territory, plummeting more than 30% from its September peak.
Despite the prevailing pessimism in the market, several experts hold a contrasting viewpoint. At a recent event, Nvidia CEO Jensen Huang labeled the notion that the software industry is in decline due to AI as “the most illogical thing in the world.” Veteran technology analyst Dan Ives of Wedbush echoed this sentiment, noting that enterprises are unlikely to discard software and infrastructure that they’ve cultivated over decades for untested technologies. This outlook presents a compelling buying opportunity for some of the industry’s well-established names.
One such company is Microsoft, which has aided in ushering the AI revolution forward by investing heavily in OpenAI, the parent company of ChatGPT. Microsoft has since developed AI-powered tools like Copilot, integrating these capabilities across a wide range of its services. Despite a 25% decline from its peak and currently trading at 25 times earnings, Ives maintains a “buy” rating and a $575 price target for the stock, suggesting a potential upside of 42%.
Another attractive opportunity lies with CrowdStrike, a prominent cloud-based cybersecurity firm. As an AI-centric company designed to withstand threats posed by AI-driven adversaries, CrowdStrike’s solutions are particularly relevant given current demand. Despite falling 25% from its peak and trading at 22 times sales, Ives projects a price target of $600 for CrowdStrike stock, indicating a possible upside of 44%.
Snowflake, a leader in cloud data management, is also seen as a strong investment. With its AI-focused platform designed for data analysis and insight generation, Snowflake stands to benefit as companies increasingly rely on security and analytics tools. After declining 35% from its peak and currently priced at 13 times sales, Ives assigns a buy rating with a target of $270, suggesting a 51% upside.
Salesforce, a pioneer in customer relationship management solutions, offers another significant potential investment. By leveraging decades of historical data, Salesforce has effectively integrated AI into its services well in advance of market trends. Currently selling for 25 times earnings after a 44% drop from its peak, Ives anticipates a significant rebound, setting a $375 target for the stock which equates to a 103% upside.
Lastly, Palantir Technologies stands out as one of the more controversial stocks but maintains a strong leadership position in providing data mining and AI solutions to both government and enterprise sectors. With its Artificial Intelligence Platform (AIP) gathering increasing demand, Palantir’s stock has declined by 36% from its peak. Even with its high valuation of 210 times earnings, Ives holds a bullish outlook, predicting potential long-term upside of 209% with a targeted price of $230.
As the market writhes under fears of disruption caused by AI, opportunities for judicious investors are being revealed within these tech stocks, as experts argue the underlying value of established software solutions remains intact.
