AI start-up Anthropic’s Cloud CoWork AI agent was designed to simplify mundane tasks like searching, gathering and organizing files. Last week, the company released plug-ins to help users in the legal, sales, finance, data, marketing, and customer support areas.
Fears that these tools could scare away investors from traditional software and digital automation providers are sending legacy software and software-as-a-service (SaaS) stocks into a tailspin, and the rout continues. The S&P North American Technology Software IndexThat includes more than 100 software stocks, plunging more than 30% from its peak in early September, falling into bear market territory.
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While some investors believe the sky is falling, many experts disagree. Dr. in a program last week. Nvidia CEO Jensen Huang said, “The idea that the software industry is in decline and will be replaced by AI. It’s the most illogical thing in the world.”
Wedbush analyst Dan Ives, a veteran of the technology sector, also believes the sale is overdone, arguing that enterprises are unlikely to abandon software and infrastructure they’ve invested decades in, especially for unproven or risky technology. This creates a buying opportunity for some of technology’s most highly regarded stocks. Let’s look at five.
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Microsoft(NASDAQ: MSFT ) Artificial Intelligence (AI) was instrumental in sparking the revolution. The software and cloud computing giant invested heavily in ChatGPT parent OpenAI and rapidly developed a suite of AI-powered Copilots to help streamline business products and increase productivity. Microsoft went further, integrating AI capabilities into a wider cross-section of its products and services.
The company is a trusted name among enterprise users, who are unlikely to risk their future on unproven technologies. According to CFO Amy Hood, its Azure cloud and AI solutions are experiencing strong adoption as “demand continues to outpace supply.”
Microsoft stock is down 25% from its peak (as of this writing) and is selling for 25 times earnings. Ives has an outperform (buy) rating and a $575 price target on Microsoft stock, indicating a potential upside of 42% from Wednesday’s closing price.
Crowd strike(NASDAQ: CRWD ) is a leading cloud-native cybersecurity specialist with AI in its DNA. The company is on the leading edge securing enterprise platforms and systems from attacks by AI-powered adversaries. So it makes very little sense that the stock has declined along with the broader software space.
The company is AI agnostic, and its Charlotte platform is the gold standard for securing domains, endpoints, and identities. Furthermore, CrowdStrike’s Falcon AI detects and protects against attacks against generative AI tools and systems — and the need has never been greater.
CrowdStrike is down 25% from its peak and is trading at 22 times sales. Ives has an outperform (buy) rating and a $600 price target on the stock, indicating a potential upside of 44% from Wednesday’s closing price.
Cloud data management specialist Snowflake(NYSE: SNOW) Provides an AI-centric platform that sifts through mounds of data in a threat-free environment, providing actionable insights to help companies improve decision-making, increase productivity and better serve their customers.
The company’s cutting-edge analytics tools and data storage solutions provide a platform where AI workflows meet proprietary and sensitive enterprise information. The need for its services will grow with the adoption of AI, not the other way around, as it provides security and controls to protect company data. It will not be hindered by improvements in AI, but rather will benefit from it.
Snowflake is down 35% from its peak and is trading at 13 times sales. Ives has an outperform (buy) rating and a $270 price target on the stock, indicating a potential upside of 51% from Wednesday’s closing price.
Salesforce(NYSE: CRM ) AI was adopted before customer relationship management (CRM) solutions were pioneered and fashionable. As such, the company has accumulated decades worth of data, which serves as a powerful moat. The company has already introduced the Agentforce suite of AI agents. These, in turn, help streamline service, sales, and marketing functions.
Moreover, its Data 360 compiles data from disparate sources and provides AI-powered insights without moving the data. All in all, the company offers a vast ecosystem of tools and solutions that have been decades in the making.
Salesforce is down 44% from its peak and is selling at 25 times earnings. Ives has an outperform (buy) rating and a $375 price target on the stock, indicating a potential upside of 103% from Wednesday’s closing price.
Palantir Technologies(NASDAQ: PLTR ) It is one of the most controversial stocks in the market today. It is an undisputed leader in providing data mining and AI solutions to government and enterprise customers alike, and in many ways, its battle-tested solutions are unmatched.
The company developed its Artificial Intelligence Platform (AIP), which aggregates company data to provide real-time solutions to everyday business problems. There continues to be unprecedented demand for AIP, as it provides a proven return on investment (ROI) for businesses. When it comes to mission-critical use cases, Palantir has no competition.
The stock is down 36% from its peak, largely due to its strong valuation, trading at 210 times earnings. Ives has an outperform (buy) rating and a $230 price target on Palantir stock, indicating upside potential of 70% from Wednesday’s closing price.
Ives argues that investors who focus only on current valuations miss the boat on innovative, game-changing stocks like Palantir. He goes further, suggesting that Palantir is “on track to become a trillion-dollar market cap company,” suggesting a long-term upside of 209%.
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Danny Vena, CPA has positions at CrowdStrike, Microsoft, Palantir Technologies, and Snowflake. The Motley Fool has positions and recommends CrowdStrike, Microsoft, Palantir Technologies, Salesforce, and Snowflake. Motley Fool has a disclosure policy.
The software bear market: 5 best-of-breed software stocks with 42% to 209% upside to buy now, according to 1 Wall Street analyst was originally published by The Motley Fool.
