If you own software stocks, the stock market hasn't been much fun in recent times. As of April 27, Atlassian (TEAM +0.66%) is down 58% over the last six months. C3.ai (AI 0.34%) dropped 52%. SoundHound AI (SOUN 0.16%) took a 55% price cut. The market has decided that I-can-do-everything artificial intelligence (AI) platforms are coming for these companies, and investors are not waiting around to see how things play out.
Here's the thing: The market might be overreacting. Not just a little. I mean, a whole lot.
NASDAQ: SOUN
Key Data Points
The Great Repricing
The thesis behind the sell-off is straightforward: AI will commoditize software. In particular, generative AI will eat the current software industry. Why pay Atlassian for project management when an AI agent can just...manage projects? Why license a next-generation database when AI can conjure data from the ether?
The logical endpoint of this thinking is that every software-as-a-service (SaaS) company becomes obsolete, replaced by a single prompt box that does everything. That single system might get expensive, but that's OK as long as it can replace a plethora of older software solutions.
Image source: Getty Images.
Investors, not wanting to be the last ones holding the bag, have fled. Money rotated into AI infrastructure (memory-chip maker Micron Technology (MU +0.90%) gained 154% over the same period while chip titan Intel (INTC +2.64%) rose 130%) and out of anything that looked like it might be on the hungry AI monster's menu.
SaaS valuations collapsed. The baby went out with the bathwater, and the bathwater went out with the tub.
NASDAQ: MU
Key Data Points
Why reports of their death are exaggerated
AI will absolutely change the software industry. But it won't vaporize companies that are building durable competitive advantages. Consider what these beaten-down names actually offer:
- Atlassian isn't waiting around to be disrupted. It's baking AI into Jira and Confluence, making its project management and collaboration tools smarter rather than obsolete. More importantly, try telling a 10,000-person engineering org to switch project management systems. You'll need more than a clever chatbot to pull that one off.
- C3.ai is in the business of helping enterprises deploy AI. The "AI will kill software" narrative doesn't land when your software is AI infrastructure. That's like saying cars will kill the highway system. If anything, C3.ai should thrive as enterprise-scale AI takes off.
- SoundHound AI builds voice AI for drive-thrus, phone menus, and car dashboards. This market isn't something ChatGPT is coming for; it's specialized, real-time, edge-deployed tech with actual paying customers.
The market is treating these stocks like the generative AI disruption has already happened. It hasn't. What has happened is that you can now buy these growth stories at half price or less. The businesses haven't changed; the sentiment has.
That's not a crisis. It's a clearance sale. I recommend taking another look at the best SaaS names while they're trading on the cheap. All three are top-notch ideas, but I would honestly check out SoundHound AI first.
