On a recent Thursday, analyst Dan Ives from Wedbush shared insights concerning the sharp downturn experienced by prominent software companies such as Salesforce Inc. (NYSE:CRM), ServiceNow Inc. (NYSE:NOW), and Microsoft Corp. (NASDAQ:MSFT). According to Ives, the market appears to be levying harsh judgments on software stocks, as if their relevance is waning in an era increasingly dominated by artificial intelligence (AI).
During an interview with Bloomberg, Ives described the ongoing selloff in the software sector as historic and unparalleled over the past quarter-century. He noted, "I could tell you in 25 years, this structural sell-off in software is unlike anything I’ve ever seen." This observation underscores the magnitude of the market's reassessment of software companies' future prospects.
Ives emphasized that investors seem to be treating software firms as if their traditional space is shrinking or nonexistent in the context of AI's rapid advancement. "You have to assume that they’re not just taking the street numbers. You have to assume that they’re actually declining the next few years," he stated, suggesting the market is pricing in potential customer attrition. The analyst further quantified this sentiment, estimating that valuations imply some companies may lose roughly 5% of their clients.
While acknowledging that AI presents disruptions to the software industry, Ives cautioned against the notion that these companies are becoming obsolete. He referenced Palantir Technologies (NASDAQ:PLTR) as a salient example of a software company succeeding within the AI era, demonstrating that adaptability remains possible.
Supporting this perspective, Nvidia Corp. (NASDAQ:NVDA) CEO Jensen Huang addressed similar concerns at the Cisco AI Summit, dismissing fears of software obsolescence as "illogical." Huang affirmed that AI fundamentally relies on software infrastructure and is not positioned to replace it.
The performance of major software stocks over various time frames reflects the challenging environment. Microsoft has seen its share price drop 16.75% over one month, 25.01% over six months, and 4.75% over twelve months. Salesforce's declines are more pronounced, with a 25.87% decrease in the past month, 23.76% over six months, and a 45.40% fall across the last year. ServiceNow has experienced a similar trajectory, losing 30.47% in one month, 43.75% over six months, and 50.04% in a year. Palantir, in contrast, also faced declines in the short and medium term but posted a 28.27% gain over the past twelve months.
Additional data from Benzinga Edge Stock Rankings reveals Salesforce demonstrates a weak price trend across short, medium, and long-term periods alongside a comparatively low value ranking. Microsoft and ServiceNow also exhibited negative momentum recently, reflecting the broader industry pressures.
These trends highlight an ongoing revaluation of software equities amid an era of technological disruption. Market participants weigh the challenges AI presents to legacy software models while recognizing the potential for innovative companies to carve out sustainable growth trajectories.