A two-week ceasefire in Iran has provided a temporary respite for the market, right as investors brace for the upcoming earnings cycle. However, market strategists warn that volatility remains a significant concern, despite advancements in artificial intelligence (AI) continuing to act as a crucial catalyst. The iShares Expanded Tech-Software Sector ETF (IGV) has seen a notable decline of 12% over the past month, while the broader S&P 500 index has experienced a slight uptick.
Ben Emons, founder of FedWatch, indicated that the recent sell-off in software stocks seems disproportionate. He mentioned, “There’s clearly a bit of an overreaction,” and suggested that certain software stocks could present attractive investment opportunities, particularly alongside utility-driven financials.
The situation is tricky for companies like Palantir Technologies (PLTR), which experienced a 14% drop in share price this past week. The software defense contractor has been scrutinized by high-profile investors, including Michael Burry, while also receiving support from political figures such as former President Trump. Nevertheless, Mark Gibbens, chief investment officer at Gibbens Capital, believes it might be an opportune moment to invest in Palantir, stating that the market has unjustly punished the company.
Similar skepticism surrounds Palo Alto Networks (PANW), which has seen its share price dip over 8% this year. Keith Gangl, a senior portfolio manager at Gradient Investments, emphasized the ongoing necessity of security software for IT departments, describing the current market condition as a rare opportunity to acquire high-quality assets at discounted prices. “I think Palo Alto is a winner there,” Gangl affirmed.
Oracle (ORCL) has also faced challenges, with shares falling around 4% last week. The tech giant recently announced plans to cut up to 30,000 jobs while increasing its investment in AI infrastructure. Despite a staggering 30% decline in its stock price year-to-date, analysts believe Oracle’s valuation remains more attractive compared to its larger peers. Pivotal Advisors CEO Tiffany McGhee highlighted Oracle’s strong cash flow, pricing power, and enterprise contracts as key selling points, calling the company a core player in the AI and cloud sectors.
While software companies grapple with headwinds, Nvidia (NVDA) presents a more favorable valuation narrative. Gibbens noted that Nvidia has seen its stock price stagnate, currently trading at 21 times forward earnings, but remains a robust choice among semiconductor stocks.
Molly Pieroni, president of Yacktman Asset Management, indicated that many stocks within the so-called “Magnificent Seven”—a group of high-performing tech firms—are overpriced for value investors. Nonetheless, she acknowledged that Microsoft’s presence in Azure and Alphabet’s innovations through DeepMind and YouTube continue to showcase multiple avenues for unlocking value.
The market’s trajectory remains unpredictable as it shifts from potential escalation to more structured negotiations. According to Michael Arone, chief investment strategist at State Street Investment Management, “Markets are certainly not done with the conflict.” He cautioned that as long as geopolitical risks loom large, downside vulnerabilities persist.
For now, investors are encouraged to keep focused on earnings and fundamental trends. Arone concluded, “Overall, markets believe that a resolution is in sight, and I think that … market action reflects that belief, that conviction.”
