Investors can’t seem to sell software stocks fast enough amid fears that artificial intelligence (AI) will ultimately disrupt and displace traditional software-as-a-service (SaaS) businesses.
Many top software companies have enjoyed lofty valuations for years, justified by wide moats in technology stocks that meant juicy profit margins, limited competition and tough recurring revenue. But AI could vaporize some of those advantages. AI can already extract information from documents and write code, and could soon begin to replace humans in various office tasks.
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While AI is a genuine threat to some software companies, the relentless sell-off has misvalued some high-quality names. Here are two cheap tech stocks that investors should consider buying right now.
Corporations will almost always invest in efficiency, which is like Service now (NYSE: NOW) became one of the most prominent software companies in the world. Its cloud-based technology allows businesses to streamline, automate, and monitor various actions and workflows, such as submitting a support ticket to IT or assigning a customer complaint to the appropriate service representative.
ServiceNow has leaned aggressively toward AI, likely because AI agents are moving toward similar capabilities over time. Most companies would prefer to avoid uprooting the systems that handle daily business activities, and proactively offering AI tools makes it less likely that a new competitor will come in and tempt companies to replace ServiceNow.
The stock now trades at just 25 times its forward earnings estimates following a 54% drop from its highs. That’s an attractive price for a leading software company that analysts still estimate will grow earnings by nearly 24% annually over the long term. ServiceNow’s decline may end up looking like an obvious buying opportunity in retrospect.
Millions of people and companies manage their credit, file their taxes or run their businesses with Intuit (NASDAQ: INTU) applications. These would include TurboTax, Credit Karma, QuickBooks, and Mailchimp. Intuit stock has taken a beating in recent weeks, falling more than 50% from its peak. With a P/E ratio of just over 25, the valuation hasn’t been this low in over 10 years. But is Intuit so cheap because of AI disruption? I don’t think so, and here’s why.