The recent sell-off in software stocks has opened up potential buying opportunities as investors reassess their positions amid a climate of uncertainty. The iShares Expanded Tech-Software Sector ETF, which includes significant holdings such as Microsoft, Palantir, and Salesforce, has seen a substantial decline of 24% this year through February 25. This downturn has been fueled by fears of disruption in the market, driven largely by advancements in artificial intelligence (AI).
While some of this selling can be attributed to justified concerns over the high valuations prevalent in the software sector, certain Software-as-a-Service (SaaS) stocks appear to be undervalued. Notably, Figma and Axon Enterprise have shown resilience and are being viewed as attractive investment opportunities following their recent earnings reports.
Figma, which went public only seven months ago, has experienced a turbulent journey, with its stock plummeting 74% since its peak shortly after its debut. Initially surging to impressive heights, Figma’s shares have dipped as low as $20, which equates to a market capitalization of $10 billion—just half of the acquisition price that Adobe had offered in 2022 before regulatory hurdles blocked the deal. Recent weeks, however, have seen a rebound in Figma’s stock, which rose by 13.89% to $31.24. Despite the volatile market, Figma has shown significant growth, posting a 40% year-over-year increase in revenue in its latest quarter, which brought its total to $303.8 million. The company has also demonstrated profitability based on generally accepted accounting principles (GAAP) and has made strides in the AI space through partnerships and new product launches.
Figma’s initiatives, such as the introduction of the Figma Model Context Protocol app in collaboration with Anthropic, showcase the company’s commitment to integrating AI solutions into its offerings. Its projections for first-quarter revenue growth at 38% and an estimated adjusted operating income of $100 million to $110 million for the year indicate a robust growth trajectory. Although Figma’s stock remains relatively high in terms of valuation, its innovative approach and increased market share against competitors like Adobe position it for promising long-term growth.
Axon Enterprise, a frontrunner in law enforcement technology, has also reported solid financial performance, with revenues increasing by 39% to $797 million, alongside adjusted EBITDA growth of 46%. The company, known for its TASER products and body cameras, is aggressively advancing in AI technology. Recent offerings include Draft One, an AI tool that helps generate initial drafts of police reports using data from Axon’s footage, and an automatic license plate recognition system that enhances its vehicle intelligence capabilities.
Despite a 40% decline in its stock value, Axon remains a formidable player in its industry. The company has set ambitious growth targets, forecasting revenues of $8 billion by 2028 and projecting annual growth rates of approximately 30% over the next few years. While it still trades at a premium, Axon’s strong competitive positioning and investments in innovative technologies bolster its prospects for continued growth.
As the software sector navigates a challenging landscape, select stocks like Figma and Axon Enterprise may present promising buying opportunities for investors looking to capitalize on future growth potential amidst ongoing market fluctuations.
