Investors in the software industry are experiencing a turbulent period as fears of artificial intelligence (AI) potentially upending traditional software-as-a-service (SaaS) businesses grip the market. A wide-ranging sell-off has left some investors scrambling to offload software stocks, and many major companies are seeing their valuations plummet.
For years, many top software firms enjoyed high valuations supported by strong profit margins, limited competition, and dependable recurring revenue. However, the rapid advancement of AI technology has raised concerns about the sustainability of these advantages, as AI’s capabilities can now extract data, automate tasks, and even write code. The prospect of AI displacing human roles across various industries adds to investor apprehensions.
Despite the challenges posed by AI, the downturn has created opportunities for savvy investors to acquire undervalued stocks from high-quality companies. Two such companies stand out as particularly attractive buys in the current market climate.
ServiceNow, a leader in cloud-based technology, has built its reputation by helping enterprises streamline their operations. The company allows organizations to automate workflows and monitor tasks, such as managing IT support tickets or handling customer complaints. Following a significant decline in stock price—now trading at just 25 times its projected forward earnings—ServiceNow demonstrates resilience as it adapts and integrates AI capabilities into its offerings. Analysts anticipate ServiceNow will continue to see substantial earnings growth, making its current valuation appear enticing for long-term investors.
Similarly, Intuit serves millions across the globe with its suite of applications, including TurboTax, Credit Karma, QuickBooks, and Mailchimp. The company’s stock has also suffered recently, falling more than 50% from its previous high, yet the valuation remains historically low at just over 25 times earnings. Concerns about AI disruption, while present, may be overstated in Intuit’s case. The company maintains strong compliance and trust advantages, making it unlikely for consumers to replace traditional methods with AI for sensitive tasks like tax filing and financial management.
Intuit is actively rolling out AI features within its existing products, leveraging vast amounts of data accumulated over the years to enhance user experience. Though no company is immune to the potential impacts of AI, the most dire projections for Intuit seem improbable. As the market stabilizes and fears around AI diminish, many believe Intuit’s stock could rebound significantly.
In conclusion, while the software industry faces unprecedented challenges from AI advancements, companies like ServiceNow and Intuit offer promising investment options. Both businesses are proactively adapting to changes in technology, and their current valuations present an opportunity for long-term growth, making them worthy of consideration for investors navigating this volatile environment.
