Software Stocks Are Cheaper Than Ever -- 2 to Buy Right Now
The Motley Fool • • business
Key Points:
- The software sector has experienced a significant sell-off due to investor uncertainty around AI's impact, pushing software stocks to their lowest relative valuation ever compared to the broader market.
- Historically, software stocks trade at higher price-to-earnings (P/E) multiples due to fast growth and predictable SaaS revenue, but current valuations are at a discount, presenting potential investment opportunities.
- Salesforce, despite a recent slowdown, is expected to accelerate growth driven by AI products like Agentforce, with AI-related revenue growing 200% year over year and a forward P/E of just 13 indicating undervaluation.
- ServiceNow is also leveraging AI as a growth driver, with AI contract values surpassing targets and strong net revenue retention, trading at a forward P/E of 21 that suggests the market underestimates its ability to attract new customers.
- Both companies are positioning AI as a key part of their future growth strategies, with Salesforce committing $50 billion to share repurchases and ServiceNow focusing on integrating acquisitions and expanding its AI platform.
