Dan Ives said that today on Bloomberg Surveillance.
It seems like when I watch Bloomberg, most of the interviews that ask about the AI and software stocks keep saying that it is far too oversold and far too overexaggerated.
Mandeep Singh from Bloomberg Intelligence also reiterated the exact same thing yesterday saying that enterprises are unlikely to rewrite code for existing software that works very well already. For example, if your workplace uses Zoom, Slack, Teams, WebEx, a company is unlikely going to rebuild a corporate level messaging system or even a Microsoft Office copy from scratch in-house to replace their enterprise software.
I personally think this sell off is a result of overleverage and excessive risk taking resulting in margin calls and panic selling. That's also mixed in with previously high valuations before earnings could actually catch up. Given that it's been 3 months since the ATH made in late October and has corrected ~10% on major US tech ETFs (XLK, IYW), it might be nearing the end of this sell off in a matter of days to weeks.
What do you guys think?
Dan Ives: I think software rips higher from here because of how oversold it is
byu/Alarming-Balance1408 instocks
Posted by Alarming-Balance1408
5 Comments
When every talking head and uninformed redditor is saying it’s a massive overreaction, I tend to get worried that it’s not
Pay attention to a company’s pricing model and a company’s ability to shift away from headcount pricing.
If a company is entrenched in a headcount-based model and is unlikely to be able to shift away, stay far away. It’s why I’m bearish on $ADBE. $CRM is shifting towards consumption based AI model with Agentforce, same with $NOW.
$NICE is probably the most exciting in the bunch.
Is it oversold or was it overbought?
A substantial portion of the Tech money, is just sort of passing back and forth between tech companies, like a game musical chairs. Company 1 uses Company 2’s capital to but Companys 2’s product. And then Company 2 uses that sale as profit. Totally glossing overwhelmed fact that they essentially bought it themselves with their own money and then gave it away to Company 1.
Eventually the music stops, and all of a sudden there’s not enough chairs, and some fall down.
The AI bubble seems like its ready to pop at anytime. In my opinion. It could also take years to pop, but it will eventually, you can’t just keep passing the money around the circle indefinitely. Not all companies will fail when it happens, but a good portion will. Which ones? When knows? My Magic 8-Ball is in the shop.
IGV, a software company ETF, still has a average PE of 35. I can’t say for sure which direction it will go over the next couple years, but 35 PE isn’t exactly cheap.