The start of the new year did not mark a reset for software stocks – instead, it continued the sell-off that began last year. Investors have grown more cautious as concerns build that the rapid spread of AI, especially generative and agentic technologies, could increasingly pressure the market share and pricing power of established software companies.
This worry is particularly acute in regard to the seat-based models that have proven so successful with SaaS subscription providers. New AI tools coming to the market both promise and threaten – depending on your point of view – to automate more of the high-value, time-consuming work, in marketing, sales, and legal, that these legacy subscription systems have been handling.
While legacy software providers have, in general, provided safe and stable revenue streams for investors until now, that predictable model is threatening to break down under the impact of automated AI agents. With the stability of the software industry at risk, more and more analysts are turning pessimistic about the sector.
Wedbush’s Daniel Ives, who is rated among the top 4% of Wall Street’s analysts by TipRanks, is taking a more measured approach. While acknowledging the risks that software is facing, he believes that the industry bears might be running too far.
“We believe the market is baking in a doomsday scenario for software companies in the near-term, which we believe is extremely overblown, as many customers won’t be willing to put their data at risk to capitalize on AI implementation strategies until there is less risk with these migration projects. Is AI a headwind in the near-term for software? YES!…however, the magnitude of this software sell-off is a major head scratcher and is factoring in an Armageddon scenario for the sector that is far from reality in our view,” Ives opined.
Ives doesn’t pull his punches, and based on that stance, he is recommending that investors buy into two big names in data analysis software: Palantir (NASDAQ:PLTR) and Snowflake (NASDAQ:SNOW). Both are…
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