Wedbush analyst Dan Ives says the sell-off in software stocks has now reached extremes that make little fundamental sense.
In a new interview with TheStreet, Ives says investors are treating AI as an existential threat to software companies, rather than a temporary disruption that will ultimately strengthen the winners.
He notes that current valuations already assume severe and unrealistic damage to leading software franchises.
“I’d say, is AI a near-term headwind for software? Yes. Is AI structurally ruining the sector? No. Essentially, baked into some of these valuations, you have to assume Salesforce loses 10–15% of its customer base. You have to assume ServiceNow numbers go down 20% from where the Street is today.
What I’m saying is, like, this is an Armageddon-like trade right now for software. And I can tell you, going back to the late 90s, I have never seen a sector structurally thrown into the garbage like this in all my time.
Now there have been times, the dot-com bubble and burst, the financial crisis, but the software sector is basically trading like it’s structurally broken. And I strongly disagree with that view.”
Ives says he sees the sell-off as a rare opportunity to accumulate category leaders positioned to benefit from AI over the long term.
“That’s why I think, like Salesforce, you talk about Oracle, CrowdStrike, some of the cybersecurity names, I think are the ones that you own along with Microsoft. This is the moment. Like, to me, it is a clear buying opportunity to own the winners if you actually have a time horizon longer than a few weeks, a few months.
In other words, we’re in year three of an eight- to ten-year build-out for the AI revolution.”
The S&P 500 Application Software Sub-Industry Index is currently hovering at 362.05, down almost 26% in just 12 months.
Nvidia CEO Jensen Huang echoes Ives’s view that software is not structurally broken. Huang recently said that the correction in software is “illogical” amid the notion that the tech subsector will be replaced by AI.
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