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US software growth stocks have been absolutely hammered recently. As a result, some of these stocks are now trading at all-time low price-to-earnings (P/E) and/or price-to-sales ratios.
Could there be a rare opportunity here for long-term investors? Let’s take a look at the landscape.
Are AI fears overblown?
The reason these shares have tanked recently is investors have grown concerned that artificial intelligence (AI) solutions from the likes of Anthropic (Claude) and OpenAI (ChatGPT) are going to destroy their business models. The theory here is that enterprises will be able to create their own software using AI and therefore won’t need to pay ongoing fees to companies like Salesforce, ServiceNow, Monday.com, and Snowflake (NYSE: SNOW).
Now, there’s no doubt that AI will disrupt some software companies. But I think there’s a level of panic (and offloading) in the market right now that’s unwarranted.
I believe a lot of software companies will continue to do well in the AI era. So, there could potentially be an investment opportunity starting to emerge.
This stock looks oversold
One stock that I see as oversold right now is Snowflake. It’s a data storage and analytics company that helps businesses store and structure their data so that they can apply AI to it.
It has fallen from $265 to $168 recently (a drop of almost 40%). After that drop, the company’s price-to-sales ratio has slumped to 10 – an all-time low.
My belief is that this company – which has been growing at a prolific rate – will continue to have success in the AI era. Because it’s focusing on the one thing AI can’t operate without – data.
Competition from rivals such as Databricks and Amazon is a risk. However, with a 4.6 rating on Gartner, I’m optimistic that the company can continue to thrive, so I think it’s worth a look.
Other opportunities in software
Turning to Salesforce – one of the largest US software businesses – it also looks interesting, in my view.
Its customer relationship management (CRM) platform is potentially disruptable. However, enterprises all over the world depend on it and the cost of switching is high so I don’t expect the company’s revenues to suddenly fall off a cliff.
Meanwhile, the company is rolling out powerful AI agent solutions. So, it could end up doing well as businesses automate their operations.
As for its valuation, it’s currently trading on a price-to-earnings (P/E) ratio of 16 – another all time low. At that multiple, I think it’s definitely worth a look.
Zooming in on cybersecurity powerhouse CrowdStrike, I’m not going to say that this is a ‘once-in-a-decade’ opportunity to buy as this stock has had some big drops in recent years. However, after plummeting from $550 to $395, I do think it’s worth a look.
In my view, AI is unlikely to reduce demand for cybersecurity software. If anything, AI should increase demand for cybersecurity because firms are going to have to protect themselves from a lot more threats.
Of course, cybersecurity is a dynamic industry so there’s no guarantee that this company will continue to have success. But with the stock currently trading 30% below its recent highs at a much lower valuation, I see quite a bit of potential.
