Software Bloodbath or Buying Opportunity Axelrod Weighs In

• Software stocks are in a bear market, down nearly 30% from recent highs amidst AI fears.
• Analysts are divided some see a buying opportunity, others predict further declines.
• Hyperscale data volume companies like Microsoft, MongoDB, and Snowflake are favored.
• A rotation towards "real economy" sectors like energy and industrials is evident.

The AI Apocalypse or Just Another Tuesday

Alright, so Wall Street's having a collective freak-out about AI turning software companies into digital dinosaurs. They're bleating about agentic AI, existential threats, the whole nine yards. News flash people panic is always a buying opportunity for those with a spine. They're acting like it's the end of the world, as if this is the first time some new tech threatened the old guard. Remember the internet These clowns were probably shorting Pets.com back then. The iShares Expanded Tech-Software Sector ETF (IGV) is taking a beating, down more than 9% this week. Good. Makes the pieces cheaper.

Bargain Bin or Roach Motel

The question is this is it a clearance sale or are we walking into a trap Some analysts, the kind who probably still use flip phones, are saying it's overdone. That these big software companies will just adapt, develop their own AI agents, and everything will be sunshine and rainbows. Others, the doom-and-gloom merchants, are predicting a complete meltdown. Look people i will always suggest to go with the flow. One thing is clear valuations were sky-high. They surged more than 58% in 2023, and 23% in 2024. A little correction was long overdue. Now you can either cry about it or find the diamonds in the rough. Speaking of diamonds, you know what else is interesting? There are other opportunities to keep an eye on, for example Wall Street Wizards Unveil Dividend Stock Potions for November, maybe there is a chance to generate some income while waiting for the market to recover.

Picking Winners in the Tech Thunderdome

Everyone's got their pet theories. Fred Hickey, some tech analyst, says he's eyeing software stocks, but only if the sector completely implodes. "I think that argument is mostly ... hogwash," he wrote. "However, after looking at the valuations, I decided they were still too high." See that's the kind of thinking you need. Cold, calculating, and devoid of sentiment. Tyler Radke from Citigroup is pitching companies exposed to hyperscale data volumes Microsoft, MongoDB, Snowflake. Sounds about right. They've got the data, they've got the infrastructure. They can weaponize AI better than anyone. Of course there are other views, as always.

The Axe Falls Deeper?

Greg Swenson, co-portfolio manager for the Leuthold Select Industries Fund, he's singing a different tune. He's worried about a "washout." That the IGV's P/E ratio, even after the drop, is still too rich. He's probably the kind of guy who clips coupons and reuses tea bags. He's also fretting about the impact on companies with private credit holdings, like Blue Owl and Ares Management. "Things don't usually tend to bottom at, like, historical median or average levels," Swenson told CNBC. "It tends to go quite a bit of a ways through it, like this, when there's this type of emotional sell-off." Maybe he's right. Maybe he's just a scared little lamb.

Adapt or Die (Like Blockbuster)

Hardika Singh from Fundstrat Global Advisors is taking a wait-and-see approach. She wants to see if these software companies can "revamp" and "pivot." If they can't she thinks they'll be the "first victims of the AI industrialization." Harsh but fair. It's survival of the fittest out there. You either adapt or you end up like Blockbuster, Kodak, or whatever other relic of a bygone era. And there will always be somebody who says that things won't go so bad.

The Great Rotation

Meanwhile, the smart money is rotating into "real economy" sectors energy, industrials, materials. The stuff that benefits from the data center buildout. Larry McDonald is pushing global value stocks. It's all about where the money flows. And with $30 trillion sloshing around in the Nasdaq Composite, even a small shift can make a big difference. The Dow Jones Industrial Average is up this week. The S & P 500 is outperforming. The game never changes you have to adapt.