AI start-up Anthropic's Claude Cowork AI agent was designed to simplify mundane tasks, including searching, assembling, and organizing files. The company released plug-ins last week to make it more helpful to users in the legal, sales, finance, data, marketing, and customer support fields.
Fears that these tools could upend traditional software and digital automation providers spooked investors, sending legacy software and software-as-a-service (SaaS) stocks into a tailspin, and the rout is ongoing. The S&P North American Technology Software Index, which includes more than 100 software stocks, has fallen into bear market territory, plunging more than 30% from its peak in early September.
While some investors believe the sky is falling, many experts disagree. At an event last week, Nvidia CEO Jensen Huang said, "There's this notion that the software industry is in decline and will be replaced by AI. It is the most illogical thing in the world."
Wedbush analyst Dan Ives, a veteran in the tech sector, also believes the selling is overdone, arguing that enterprises are unlikely to abandon software and infrastructure they've invested decades in, particularly for unproven or risky technology. This creates a buying opportunity for some of technology's most highly regarded stocks. Let's take a look at five.
Image source: Getty Images.
Microsoft: 42% upside
Microsoft (MSFT 0.20%) was instrumental in sparking the artificial intelligence (AI) revolution. The software and cloud computing giant invested heavily in ChatGPT parent OpenAI and quickly developed a suite of AI-powered Copilots to help streamline business produces and boost productivity. Microsoft went further, integrating AI capabilities across a broad cross-section of its products and services.
The company is a trusted name among enterprise users, who are unlikely to risk their futures on unproven technologies. Its Azure Cloud and AI solutions are experiencing robust adoption as "demand continues to exceed supply," according to CFO Amy Hood.
Microsoft stock has fallen 25% from its peak (as of this writing) and is selling for 25 times earnings. Ives has an outperform (buy) rating and a $575 price target on Microsoft stock, implying potential upside of 42% compared to Wednesday's closing price.
CrowdStrike: 44% upside
CrowdStrike (CRWD 0.24%) is a leading cloud-native cybersecurity specialist that has AI in its DNA. The company is on the leading edge, securing enterprise platforms and systems from attacks by AI-powered adversaries. That's why it makes so little sense that the stock has fallen along with the broader software space.
The company is AI agnostic, and its Charlotte platform is the gold standard for securing domains, endpoints, and identities. Furthermore, CrowdStrike's Falcon AI Detection and Response protects from attacks against generative AI tools and systems -- and the need has never been greater.
CrowdStrike has fallen 25% from its peak and is trading for 22 times sales. Ives has an outperform (buy) rating and a $600 price target on the stock, implying potential upside of 44% compared to Wednesday's closing price.
NASDAQ: CRWD
Key Data Points
Snowflake: 51% upside
Cloud data management specialist Snowflake (SNOW 1.13%) provides an AI-centric platform that sifts through mounds of data in a threat-free environment, providing actionable insights to help companies improve decision-making, increase productivity, and better serve their customers.
The company's state-of-the-art analytics tools and data warehousing solutions provide a platform where AI workflows meet proprietary and sensitive enterprise information. The need for its services will increase with the adoption of AI, not the other way around, as it provides the security and controls to protect company data. This will hardly be disrupted by improvements in AI, but rather benefit from it.
Snowflake has fallen 35% from its peak and is selling for 13 times sales. Ives has an outperform (buy) rating and a $270 price target on the stock, implying potential upside of 51% compared to Wednesday's closing price.
Salesforce: 103% upside
Salesforce (CRM +2.77%) pioneered customer relationship management (CRM) solutions and adopted AI long before it was fashionable. As such, the company has amassed decades' worth of data, which serves as a powerful moat. The company has already introduced its Agentforce suite of AI agents. These, in turn, help streamline service, sales, and marketing tasks.
Furthermore, its Data 360 compiles data from disparate sources and provides AI-driven insight without moving the data. In all, the company offers a vast ecosystem of tools and solutions that have been decades in the making.
Salesforce has fallen 44% from its peak and is selling for 25 times earnings. Ives has an outperform (buy) rating and a $375 price target on the stock, implying potential upside of 103% compared to Wednesday's closing price.
NASDAQ: PLTR
Key Data Points
Palantir Technologies: 209% upside
Palantir Technologies (PLTR +1.45%) is one of the most controversial stocks on the market today. It's an undisputed leader in providing data mining and AI solutions to government and enterprise customers alike, and in many ways, its battle-tested solutions are without equal.
The company developed its Artificial Intelligence Platform (AIP), which aggregates company data to provide real-time solutions to everyday business problems. Unprecedented demand for AIP continues, as it delivers proven return on investment (ROI) for businesses. When it comes to mission-critical use cases, Palantir has virtually no competition.
The stock has fallen 36% from its peak, mainly due to its egregious valuation, trading at 210 times earnings. Ives has an outperform (buy) rating and a $230 price target on Palantir stock, implying upside potential of 70% compared to Wednesday's closing price.
Ives argues that investors who focus solely on current valuations miss the boat on innovative, game-changing stocks like Palantir. He goes further, suggesting Palantir is on its way to "becoming a trillion-dollar market cap company," suggesting longer-term upside of 209%.
