Software stocks have been falling sharply this year, amid concerns that artificial intelligence will cripple their respective businesses.
One of the big themes in the markets of late has been investors selling off shares of software companies. As artificial intelligence (AI) changes the way business is done, it has the potential to drastically impact the need for software solutions that many companies offer. From coding to doing reports, there are plenty of ways that AI can make it easier for businesses to be less reliant on software providers and reduce the number of subscriptions they have.
Investors have been selling shares of software companies in anticipation of this, expecting them to struggle in the future. But Nvidia (NVDA 0.79%) CEO Jensen Huang, who has been at the forefront of the AI revolution, has a warning for investors, suggesting that the recent sell-off may be unreasonable.
Image source: Getty Images.
Huang calls it ‘illogical’ to expect that AI will replace software
AI has the potential to change the way jobs are done, and it can certainly enhance business products and solutions. But Huang doesn’t believe that AI is going to replace entire businesses, referring to the idea as “the most illogical thing in the world.” He believes that AI can be used with existing tools and software to make them better, rather than outright replacing them.
Nvidia has acted as the fuel that has powered a lot of the growth in AI, with the chipmaker generating fantastic results along the way. In the trailing 12 months, the tech company‘s profits have totaled nearly $100 billion. And it was only a few years ago that its net income wasn’t even $5 billion for a full year. The company’s chips have revolutionized businesses, enabling them to do more with less.
Today’s Change
(-0.79%) $-1.50
Current Price
$188.54
Key Data Points
Market Cap
$4.6T
Day’s Range
$188.12 – $192.48
52wk Range
$86.62 – $212.19
Volume
137M
Avg Vol
181M
Gross Margin
70.05%
Dividend Yield
0.02%
But AI has been a problem for the iShares Expanded Tech-Software Sector ETF, which contains many top software stocks, including Salesforce and Adobe. The ETF has been in a sharp freefall this year, declining by around 20% thus far. And this is even with a bit of a bounce back recently after Huang’s comments. As a result, there could be many attractive buying opportunities in the market right now.
Could now be a good time to buy software stocks?
For bargain hunters, there are some potentially appealing deals in the market right now. Both Salesforce and Adobe are trading around their multi-year lows and could make for potentially appealing contrarian investments to buy. However, they both come with risks and uncertainty.
While Huang’s point of AI not outright replacing these businesses is valid, there are still question marks about whether AI will negatively impact their future growth opportunities. AI can, after all, make it easier for smaller companies to compete in these areas and offer cheaper and more attractive solutions.
The safest approach for investors is to look at each software company on its own and pay close attention to upcoming earnings reports and calls, and take note of how the business is growing amid AI and how strong its guidance is. That type of information can provide you with a good idea of how the business is doing, and whether the AI concern around the business is justifiable, or if the stock can be a good buy.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Nvidia, and Salesforce. The Motley Fool recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.