Tech Investor Sees Generational Buy in Software Selloff

The unstoppable surge in stocks powered by artificial intelligence has hit a snag, with investors now grappling with the troubling possibility that AI progress might undermine the core strengths that propelled major technology firms to their leading positions. Nevertheless, certain industry leaders and seasoned market observers are urging caution against knee-jerk reactions, describing the ongoing selloff as a unique window to invest in the forthcoming stage of the AI expansion.

The narrative of rapid AI-driven growth has been overshadowed by a broad decline across software company shares. Whether labeled as software-mageddon or the SaaSpocalypse, firms focused on creating, distributing, and supporting digital software solutions are experiencing significant pressure. Just a few weeks ago, analysts from JPMorgan highlighted that these software enterprises had collectively shed approximately $2 trillion in market value during the previous year, marking it as the most substantial drop in over three decades outside of a recessionary period.

The primary driver behind this downturn is a growing investor sentiment that artificial intelligence is dividing the technology sector into clear victors and vanquished. In this perspective, traditional software providers risk being categorized among the losers, as cutting-edge AI systems threaten to supplant costly digital offerings, potentially making the operational frameworks of giants like Salesforce and Atlassian outdated and unviable.

However, not every investor believes these established players are headed for obsolescence. Amid the market turbulence, there may be a hidden gem: the chance to acquire shares in these technology firms at reduced prices, something increasingly scarce in an environment characterized by inflated valuations and unchecked speculative fervor. The key factor hinges on whether optimistic purchasers view AI as an enhancer that works alongside current software solutions or as a superior force poised to fully displace them.

Dan Ives, who serves as a managing director and senior equity research analyst at Wedbush Securities, expressed strong confidence in this scenario during a recent discussion. He declared that the current software market correction represents a generational opportunity to invest in some of the most enduring names in the industry. Despite the evident sharp retreat in prices, Ives stated that he feels even more convinced about the long-term bullish outlook for technology and AI this year.

Promising Stocks Poised for Recovery

Ives specifically pointed to three prominent companies in the sector that he believes have been unduly penalized by the current market dynamics and are primed for a robust resurgence. These include Salesforce, which has declined by 27.17% since the start of the year; ServiceNow, down 28.55% year-to-date; and Microsoft, which has dropped 15.8% over the same timeframe.

Describing the downturn in software equities as a structural selloff—the most extensive he has witnessed in his 25-year career—Ives reframed this massive value erosion not as a harbinger of failure but as a rare, once-in-a-generation prospect to gain exposure to enterprise technology solutions. He emphasized that software providers will continue to play an essential role in key applications, even as AI transforms the landscape.

In an earlier conversation with Bloomberg, Ives elaborated further on his rationale. He positioned AI’s influence as a temporary challenge that would ultimately bolster the fortunes of software companies. One significant barrier, he noted, lies in the realm of digital security requirements for business clients. External AI tools or internally developed AI software may find it difficult to rival established providers like Salesforce, which possess decades of accumulated data and the deep-seated trust fostered through enduring relationships with their customer base.

Ives is far from the only voice dismissing the software sector’s slump as a mere distraction. Just last week, David Solomon, the CEO of Goldman Sachs, characterized the selloff as excessively widespread, asserting that not all software developers would endure prolonged setbacks from this event. Similarly, JPMorgan analysts adopted an optimistic stance, labeling the fears over AI-driven disruption in software as an excessively pessimistic narrative. In their research report, they argued that investors should anticipate a recovery, underpinned by the robust financial health of these firms. Moreover, they suggested that providers of longstanding digital infrastructure are likely shielded from immediate AI threats due to the substantial expenses and commitments involved in switching vendors, including lengthy contractual obligations spanning multiple years.

That said, the potential for AI to disrupt the software industry remains real, and it could claim some major casualties. Numerous stocks that have commanded premium prices based on their AI involvement might also face painful adjustments. Back in December, Microsoft cofounder Bill Gates remarked during a CNBC interview that the AI sector had turned hypercompetitive, warning that certain firms deeply engaged in AI development could become overpriced.

Gates clarified that AI resembles a bubble only insofar as not every lofty valuation will sustain upward momentum; some are bound to correct downward. For the moment, however, daring investors who buy into these faltering AI-linked equities stand to gain handsomely if a rebound materializes, particularly when considering the steep premiums required to enter the market at peak levels. As analysts from Morgan Stanley observed in a recent publication, battered software names—such as Microsoft itself and Intuit, the tax preparation specialist—may ultimately prove to have offered compelling entry opportunities in hindsight.

This perspective underscores a broader market dynamic where short-term volatility creates long-term value for patient capital. The software selloff, while dramatic, reflects not just AI anxieties but also broader economic recalibrations. Investors who can discern between transient fears and enduring strengths may position themselves advantageously for the AI revolution’s next chapter.

Enterprise software’s resilience stems from its embedded nature within corporate workflows. Companies have invested heavily in customizing these platforms, integrating them with proprietary data systems, and training workforces to utilize them effectively. Dislodging such incumbents demands not only superior technology but also overcoming inertia, regulatory hurdles, and the proven reliability that legacy providers offer.

Ives’ bullishness extends beyond mere survival; he envisions AI supercharging these platforms. For instance, Salesforce’s Einstein AI integrates seamlessly with its CRM suite, enhancing rather than replacing core functionalities. ServiceNow’s AI-driven workflows automate complex IT service management, while Microsoft’s Copilot embeds generative AI into Office and Azure ecosystems, creating symbiotic value.

Market data supports this view. Despite the YTD declines, these firms maintain impressive growth trajectories. Salesforce reported 11% revenue growth in its latest quarter, ServiceNow 22%, and Microsoft 17% overall with Azure cloud surging 33%. Free cash flow generation remains robust, funding AI R&D without diluting shareholders.

Contrarian opportunities like this arise infrequently. Historical parallels include the post-dot-com shakeout, where survivors like Microsoft emerged stronger. Today’s selloff, at 25-30% off highs for many names, approaches those levels, tempting value hunters.

Risks persist, of course. If open-source AI commoditizes core features, margins could compress. Hyperscalers building proprietary tools might erode TAM for independents. Yet, Ives and peers bet on symbiosis over substitution, citing enterprise stickiness and AI’s nascency.

For investors, the message is clear: amid the noise of software-mageddon, generational bargains beckon. Discriminating buyers who focus on fundamentals over headlines could reap outsized rewards as AI maturity vindicates the bulls.