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With Dr. Michael Burry reportedly buying the dip in some of the battered software names, it might seem like it’s safe to get back into the SaaS as the so-called SaaS-pocalypse or software reckoning looks to ease after an upsetting first few months of the year. Undoubtedly, Burry is a genius investor who’s known to make bold contrarian calls. But whether it’s too early in the game to go after the likes of the fallen software plays amid the rising threat of AI disruption remains the big question.
Nvidia (NASDAQ:NVDA | NVDA Price Prediction) CEO Jensen Huang’s previous remarks seem to suggest that the vicious sell-off in the software stocks doesn’t make a lot of sense. In fact, he said that it’s “the most illogical thing in the world.”
Coming from one of the brightest minds in AI, I’d be more than willing to give the man the benefit of the doubt. And while I do think there are some pretty sizeable bargains to be had in software right here, I would be very selective, rather than scooping up the broad batch or going for something like the iShares Expanded Tech-Software Sector ETF (IGV), which is up more than 10% in the past week.
Could there be deep value in the software scene right now?
In a prior piece, I highlighted the possibility that continued “scary” releases from Anthropic and its rivals might not have the same effect on broad markets. Investors can get fatigued by the same old news, and what was scary yesterday might not be in a week from now.
Either way, to paraphrase the great Oracle of Omaha, Warren Buffett, the market certainly does seem to be a voting machine in the short run and a weighing machine in the long run. As to whether it’s time for the market to weigh the software stocks for their true worth right here, though, remains the big question. There’s no question that valuations are at unprecedented lows.
But when it comes to software and most other former growth darlings, it’s far more tempting to pay a higher price for growth rather than pay a rock-bottom multiple for potentially narrowing economic moats. Either way, I think software has become the new place for deep-value investors.
And Michael Burry isn’t the only smart money manager who’s gone bottom-fishing in the industry. As the first quarter 13F filings come out, we’ll get to see how many hedge funds were buying the dip and how much they’ve been deploying as others sold out.
These AI infrastructure plays have decent multiples and tailwinds
In any case, AI infrastructure continues to be the place to be, even as software bounces back slightly. When it comes to Oracle (NYSE:ORCL), you’re getting software and AI infrastructure in one package.
The stock is on a ridiculous hot streak, up more than 30% in the past week, thanks in part to a relief rally in software and reignited enthusiasm for AI infrastructure plays. It’s in the right place at the right time again, and I do think it isn’t too late to step in, given the shares are still a country mile away from their peak.
Also, Alphabet (NASDAQ:GOOG), which is making noise with its TPUs of late, is another AI compute play that might be worth picking up if you want a discount without having to run the risk of being on the wrong side of disruption. Software stocks might be cheap, but at 30.7 times trailing price-to-earnings (P/E), I’d argue that shares of an AI innovator are going for a fair price for being on the right side of the boom.
In any case, I don’t think you need to be a hero, like Burry, by jumping into the software waters right here. Though, if the bottom is in and the uncertain SaaS plays can use their own AI innovations in the transition away from the seat model, I do think there’s considerable upside to be had. Personally, I like Oracle best for its perfect mix of software and AI infrastructure.