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Every once in a while, the market gets into a really bad mood and starts marking down stocks that fit a certain theme quite viciously. In recent weeks, the Iran conflict and resulting spike in oil prices have caused just about everything to move lower, including the names that may very well find their way back to prior highs once oil prices have a chance to plunge and normalize.
Even if oil backs down, there is a lingering headwind that might be keeping shareholders of Software-as-a-Service (SaaS) companies up at night. Indeed, it’s hard to judge how big a deal that AI agents and new specialized tools are in the workplace.
If the Magnificent Seven and Oracle (NYSE:ORCL | ORCL Price Prediction) are spending around $700 billion to fund the AI efforts this year, perhaps there is some risk that investors might still be underestimating the impact of AI and agents on the workforce. Either way, the market may very well be hedging its bets by marking down the SaaS companies (the impacted) and the heavy AI spenders (the Mag Seven).
Pressure on tech and software might be overdone
Oracle seems to fit in both camps with its aggressive AI infrastructure spend alongside its enterprise software suite, which, I believe, is more agent-forward than most other offerings across the industry. Either way, AI infrastructure is where the puck is headed next, and Oracle seems to be skating in that direction quite quickly, even if it comes at great cost.
Though it’s hard to tell which camp is right (or if they both deserve to be sold off), I do think that there’s an opportunity for stock pickers to spot the oversold, severely marked-down software companies that might have what it takes to navigate through the so-called “SaaS-pocalypse” hurricane while coming out the other end in a far better position because its AI efforts.
In any case, many would be quick to consider the SaaS selling a bit of a stretch, considering Anthropic’s new AI tools aren’t quite at a level such that SaaS seats would collapse overnight. Still, the market is forward-looking. And given the profound cloud of uncertainty over what the future of tech, AI and software could hold, maybe it’s not so surprising that the carnage in software has been so vicious. As to whether it’s a once-in-a-decade gift for the tech bulls remains the big question. Understandably, there might be SaaS firms out there that are due to crumble at the hands of AI-equipped rivals.
Salesforce is close to the cheapest it’s been in a very long time
For example, Salesforce (NYSE:CRM) stock has been under immense pressure, with shares finally experiencing a full 50% haircut from peak levels. CEO Marc Benioff may be a big believer in Agentforce. And his firm’s decision to move ahead with share buybacks seems to mirror his confidence. Insiders have also not hesitated to buy the dip. While Benioff and company might be right to go ahead with a big debt-fuelled $25 billion buyback, I’m still not so sure if Salesforce stock is a generational bargain or a perennial underperformer that’s at great risk as AI agents evolve.
The big unknown that I’m most afraid of when it comes to Salesforce is what happens when firms just start using AI tools to make their own in-house CRMs. Could it be that the same shift we saw with custom silicon is happening in the software space?
It will be interesting to see how Salesforce and the rest of the software progress through the year as agentic AI changes software.
The AI risks are real
Arguably, small businesses are already making their own software, but the big question is what it will take for the titans to follow suit, especially considering the higher stakes involved with rolling up one’s sleeves. There are also cannibalization concerns as Salesforce gives agents its all. Just how much of that common worry is priced in, though, remains a mystery.
For now, analysts seem to be siding with Salesforce with the belief that there’s value to be had here. Many are sticking with their buy recommendations and high price targets. That suggests confidence despite the recent weakness in the stock. Personally, though, I’d rather adopt a wait-and-see approach when it comes to the name.
If the firm can get growth back on the high track and put to rest the agentic AI fears, I’d be much more comfortable paying a higher price for a clearer path forward. Of course, waiting to buy on strength would cause one to forego the generationally depressed 23.0 times trailing price-to-earnings (P/E) multiple.
