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From time to time, the market gets into a really bad mood and starts underselling very badly stocks that fit a certain theme. In recent weeks, the Iran conflict and resulting surge in oil prices have caused almost everything to decline, including names that could very well go back to prior highs if oil prices decline and have a chance to normalize.
Even if oil declines, a headwind will remain that could keep shareholders of software-as-a-service (SaaS) companies awake at night. In fact, it is hard to estimate how big a role AI agents and new specialized tools will play in the workplace.
If the glorious seven and Oracle (NYSE:ORCL | orcl price prediction) are spending nearly $700 billion this year to fund AI efforts, perhaps there is some risk that investors are still underestimating the impact of AI and agents on the workforce. Either way, the market can hedge its bets by marking SaaS companies (Affluence) and heavy AI spenders (Mag Seven).
The pressure on technology and software may be excessive
Oracle fits into both camps with its aggressive AI infrastructure spending as well as its enterprise software suite, which I believe is more agent-forward than other offerings across the industry. Either way, AI infrastructure is where the puck is headed, and Oracle is skating in that direction very quickly, even if it means paying a big price.
Although it’s hard to tell which camp is right (or if they’re both worth selling), I think there’s an opportunity for stock pickers to identify oversold, severely marked-down software companies that may have the capabilities needed to navigate through the so-called “SaaS-pocalypse” storm, while coming out the other end far better off because of their AI efforts.
In any case, many people will be quick to consider that SaaS is being sold in small quantities, given that Anthropic’s new AI tools are not at such a level that SaaS seats will collapse overnight. Still, the market is future-oriented. And given the deep cloud of uncertainty over the future of technology, AI, and software, perhaps it’s not so surprising that the massacre in software has been so terrible. The big question remains whether this is a once-in-a-decade gift for tech bulls. Obviously, there may be SaaS companies that are about to collapse at the hands of AI-equipped rivals.
Salesforce is close to the cheapest it has been in a very long time
For example, sales force (NYSE:CRM) The stock has been under extreme pressure, with shares ultimately falling as much as 50% from peak levels. CEO Marc Benioff may be a big believer in AgentForce. And his company’s decision to move forward with a share buyback reflects his confidence. Insiders haven’t been hesitant in buying the dip either. While Benioff and company may be right to move forward with a massive $25 billion debt-based buyback, I’m still not so sure whether Salesforce stock is a generational bargain or a perennial underperformer that is at great risk as AI agents evolve.
The biggest unknown that I fear most when it comes to Salesforce is when companies start using AI tools to build their own in-house CRM. Could it be that the same change 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 throughout the year as agentic AI software changes.
AI risks are real
Sure, small businesses are already creating their own software, but the bigger question is what it will take for the titans to follow suit, especially given the high stakes involved in rolling up one’s sleeve. There are also concerns of cannibalization as Salesforce gives its all to agents. However, how much that general concern is costing remains a mystery.
At the moment, analysts are favoring Salesforce with the belief that there is value here. Many are sticking to their buy recommendations and high price targets. This signals confidence in the stock despite recent weakness. However, personally, I would take a wait and see approach when it comes to the name.
If the firm can get growth back on a higher path and calm agentic AI fears, I’d be more comfortable paying a higher price for a clearer path forward. Of course, waiting for strength to buy would leave one with a generationally lagging price-to-earnings (P/E) multiple of 23.0x.
