Wall Street Faces “Software-mageddon”: A Shift in Investor Sentiment
The tumultuous landscape of Wall Street has witnessed the escalation of what is being referred to as a “Software-mageddon.” This phenomenon has prompted investors to ponder whether it is prudent to re-engage with the beleaguered technology stocks that have recently taken a substantial hit.
The repercussions for the software sector—home to several flagship stocks from the recent bullish phase—are charged with apprehension regarding the disruptions poised by advancements in artificial intelligence (AI).
As a result, the investment community is increasingly bifurcating the sector into perceived victors and vanquished. This market volatility is exacerbated by a trend of divesting from technology stocks in favor of other market segments that have historically underperformed.
Investors are now awaiting forthcoming corporate earnings reports during this crucial earnings season, which could further influence asset valuations.
James St. Aubin, chief investment officer at Ocean Park Asset Management, based in Santa Monica, California, articulated, “The selloff, which arguably commenced last quarter, signifies recognition of AI’s transformative potential. While this may border on an overreaction, the threat remains tangible, compelling a reassessment of valuations.”
In just a week, the S&P 500 software and services index has plunged by 13%, erasing upwards of $800 billion in market capitalization. This decline has been driven by steep drops in prominent companies such as Intuit, ServiceNow, and Oracle.
Comparatively, the software sector experienced its most significant three-month downturn since May 2002—paralleling the aftermath of the dot-com bubble bursting—according to analysts from Evercore ISI.
Despite the alarming downturn, certain technical indicators are signaling the possible emergence of a temporary bottom for the sector, prompting some portfolio managers to cautiously increase their positions in these distressed stocks. Nonetheless, investors remain reluctant to issue a blanket all-clear declaration.
Evaluating Potential Value
Jake Seltz, portfolio manager at Allspring Global Investments in Minneapolis, noted, “There exists intrinsic long-term value in these stocks, and they are becoming increasingly attractive.
” He has incrementally added to his holdings in companies like ServiceNow and Monday.com, while awaiting stronger catalysts, such as robust AI-related revenue reports or announcements concerning enterprise deployments of such technologies.
Turning Away from Tech Stocks
Recent instability has been exacerbated by concerns surrounding a new tool released by Anthropic’s Claude large language model and disappointing earnings narratives from tech giants like Microsoft.
The S&P 500 software index has experienced a contraction of roughly 25% since its peak last October, during a period in which the S&P 500 has remained relatively stable. Options traders have demonstrated a marked disinterest in acquiring the beleaguered software stocks.
Art Hogan, chief market strategist at B Riley Wealth, remarked, “This has been Software-mageddon.” The significant downturn in software stocks has coincided with a broader market shift away from technology investments, diverting assets into sectors such as consumer staples, energy, and industrials—areas that had been overshadowed by tech amid the bull market initiated in October 2022.
Jim Masturzo, chief investment officer at Research Affiliates, emphasized, “The rationale behind selling these overpriced stocks lies in the emergence of more attractively valued opportunities, rather than panic over a collapse within the software and tech domains.”
Seeking Opportunities Post-Collapse
The question of whether value can be salvaged from software stocks lies at the crux of current investor debates.
Among the most adversely affected this year are Intuit, ServiceNow, and Salesforce, with Microsoft being the poorest performer among the “Magnificent Seven” megacap companies. Additionally, the technology and content firm Thomson Reuters has also faced sharp declines this week.
Walter Todd, chief investment officer at Greenwood Capital in South Carolina, stated that the software sector appears oversold on a technical basis, hinting at the proximity of a “near-term bottom.” His firm has engaged in the selective buying of shares in ServiceNow and Microsoft recently.
While not inclined to “bet the farm” on software investments, Todd believes they are increasingly showcasing value. He remains skeptical about the feasibility of a complete overhaul of existing software frameworks for AI solutions.
Brad Conger, chief investment officer at Hirtle, Callaghan & Co., has begun contemplating prospective acquisitions in shares like SAP, Adobe, and Intuit, which have suffered significantly during this selloff. He posited, “One could argue they are poised for a rebound.”
Nonetheless, Conger indicated his hesitance to make purchases at current levels, as he is not yet convinced that the worst-case scenarios have been factored into prices.
Some investors draw parallels between the current decline and the swift downturns triggered last year by the advent of low-cost AI models like Deepseek, which raised apprehensions about the financial landscape tied to AI.
Rene Reyna, head of thematic and specialty product strategy at Invesco, remarked, “We are gaining clearer insights into AI’s capabilities, leading the market to reprice its expectations—a signal of waning confidence regarding future software sales growth in an AI-centric environment.
Is this reaction excessive? The answer remains uncertain, yet the cascade of sell-offs can certainly perpetuate further declines.”
Source link: M.economictimes.com.
