It might be time to at least start thinking about the kinds of battered software names to pick up while they’re heavily out of favor at the hands of the AI revolution. Of course, not every SaaS company will find a way to pivot and perform in this new era of AI agents. But, that said, the big question for value hunters is which firms are best positioned, given their unique moats (think data moats, AI expertise, and the ability to offer more value beyond what the model makers can) and management capabilities.
Indeed, if there’s a CEO who’s left his seat or an AI strategy plan that’s not all that crystal clear, there might be hidden risks that investors might need to model in. Either way, I believe that there’s immense value to be had in the software scene, but, at the same time, there’s also a lot of risk, given the profound haze of uncertainty that the new era of AI technologies has brought in.
Software is flying into no man’s land. It still makes sense to watch them
These days, you don’t have to look too far for a bear on software who thinks that some of the major players are headed straight to zero due to the rise of AI firms that are hungry to take away some of the hearty lunches from SaaS companies.
At the same time, though, Nvidia (NASDAQ:NVDA | NVDA Price Prediction) top boss Jensen Huang, whom I view as one of the go-to experts when it comes to all things AI, thinks that the rise of AI and agents could actually work out in software’s favor. There’s definitely some truth to what Jensen says, especially when you consider that more digital labor means more need for certain kinds of software tools. In any case, I think investors would be wise not to shun any stock just because it’s in software and just because the stock chart is looking horrid in recent years.
Some software companies remain a giant question mark, and it’s okay not to have an opinion on them. Others seem like they’d not only be resilient in the shift towards AI, but stand to be in an even better spot in three-plus years from now when agentic AI looks to become exponentially better.
What will win and lose in software? Time will tell, but in this piece, we’ll look at two names that I think are likelier to be bargains rather than traps. Of course, this is all my opinion, so do your own research before you start bottom-fishing in one of the toughest corners of the market in recent quarters.
Cadence and Palo Alto are two “software” names that are more like AI winners
Cadence Design Systems (NASDAQ:CDNS) and Palo Alto Networks (NASDAQ:PANW) have already left the software penalty box. And though the names are clear AI winners, I still think there’s an opportunity to be had in the names.
Of course, the business of electronic design automation and cybersecurity seems like they have more to do with AI than traditional software. And as the AI revolution gives way to a new slate of tailwinds that could power each firm even higher, I think there’s relative value hiding in plain sight as the market looks to re-value the broad basket of software plays.
At the end of the day, tools like Cadence’s tools might be made even more effective in the hands of an AI agent. Undoubtedly, the semiconductor flywheel is spinning fast, and it still doesn’t feel like Cadence and other EDA players are getting the respect they deserve.
And for Palo Alto Networks stock, it’s always miles ahead in the AI game. Given the AI-powered cyberthreats to come, I’d argue that it’s time to think of Palo Alto as less of a software play and more of a critical AI firm that’s arguably already pivoted effectively.
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