Software selloff offers tech stock opportunities
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Illustration: Brendan Lynch/Axios
The software selloff is giving investors an opportunity they haven't had in a year: tech stocks on sale.
Why it matters: Investors just have to delineate between the stocks that can survive and the ones that will become the BlackBerrys of AI disruption.
What they're saying: "Good companies are getting disregarded," Marta Norton, chief investment strategist at Empower Investments, tells Axios.
- Yes, there's a risk of "catching falling knives, but there's also great opportunity," she adds.
Zoom in: How do you choose?
- Software companies that offer one form of application may be at risk, while those offering full workflows powered by their infrastructure could be buying opportunities.
- Under that thesis, a company like Microsoft would be a buy at current price levels, while Docusign, known for offering one primary solution that could be replaced by AI, would not be.
Threat level: The risk is a fundamental re-rating of valuations for software.
- Norton points to the example of BlackBerry. Yes, it survived, but its stock is down about 98% since its peak.
Between the lines: This points to the importance of stock picking, which had fallen off amid an AI-driven bull market post-2022.
- Investors were able to own the entire tech sector and earn great returns, especially given the rise of the so-called Magnificent 7.
- Now, even the Mag 7 is bifurcating, and returns of the tech sector are divided as well: 50% of tech stocks have delivered the worst returns of the S&P 500 year-to-date, while 20% have delivered the best.
The bottom line: Market drops like the software selloff allow investors to find a sale they like and, therefore, an edge.
- If they pick the right stocks, at least.
