Investors can't seem to sell software stocks fast enough amid fears that artificial intelligence (AI) will ultimately disrupt and displace traditional software-as-a-service (SaaS) businesses.
Many of the top software companies have enjoyed lofty valuations for years, justified by wide tech stock moats that meant juicy profit margins, limited competition, and sticky recurring revenue. But AI could vaporize some of those advantages. AI can already extract information from documents and write code, and could soon begin replacing humans in various office tasks.
While AI is a genuine threat to some software companies, the relentless, widespread sell-off has mispriced some high-quality names. Here are two cheap tech stocks that investors should consider buying right now.
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1. ServiceNow
Corporations will almost always invest in efficiency, which is how ServiceNow (NOW 0.54%) became one of the world's most prominent software companies. Its cloud-based technology enables enterprises to streamline, automate, and monitor various actions and workflows, such as submitting a support ticket to IT or assigning a customer complaint to the appropriate service rep.
NYSE: NOW
Key Data Points
ServiceNow has aggressively leaned into AI, likely because AI agents are moving toward similar capabilities over time. Most companies would rather avoid uprooting systems that handle daily business activities, and proactively offering AI tools makes it less likely that a new competitor can come in and tempt companies to replace ServiceNow.
The stock now trades at just 25 times its forward earnings estimates following a 54% plunge from its highs. That's a compelling price for a leading software business that analysts still estimate will grow earnings by nearly 24% annually over the long term. ServiceNow's tumble may wind up looking like an obvious buying opportunity in hindsight.
2. Intuit
Millions of people and businesses manage their credit, file their taxes, or run their businesses with Intuit (INTU 0.52%) apps. Those would include TurboTax, Credit Karma, QuickBooks, and Mailchimp. Intuit's stock has taken a beating in recent weeks, sliding more than 50% off its high. At a price-to-earnings ratio of just over 25, the valuation hasn't been anywhere near this low in more than 10 years. But is Intuit this cheap because of AI disruption? I don't think so, and here's why.
NASDAQ: INTU
Key Data Points
Most of Intuit's products enjoy strong compliance and trust advantages. In other words, it's difficult to see many people trusting ChatGPT to file their taxes or manage their company's finances, because the AI isn't liable for mistakes, and errors can have severe consequences. As with ServiceNow, Intuit is trying to get ahead of AI disruption while it can still be an opportunity rather than a threat.
Intuit is proactively integrating AI into its existing products, using decades of first-hand data it has collected, to provide the best user experience possible. Now, the stock wouldn't have gotten this cheap if it were a certainty that AI couldn't affect the business. That said, worst-case scenarios seem quite unlikely here. Once these AI fears dissipate a bit from the market, Intuit stock could mount a ferocious and lucrative comeback.
