Software stocks have been under pressure recently, fueled by investor anxieties surrounding the potential for artificial intelligence to disrupt the industry. However, Nvidia CEO Jensen Huang offered a counterpoint this week, asserting that the notion of AI replacing software is “the most illogical thing in the world.” His comments, made at the Cisco AI Summit on Tuesday, , have prompted a reassessment of the sell-off, with some analysts suggesting opportunities for investors.
The concern stems from the emergence of increasingly capable AI tools, such as Anthropic’s Claude Cowork, which are beginning to demonstrate the ability to automate tasks traditionally handled by software. This has led to a decline in valuations for software companies, particularly those serving sectors like legal work, which saw a sharp drop following the release of Claude Cowork’s productivity tool for in-house lawyers. The iShares Expanded Tech-Software ETF (IGV) is down 21% year-to-date, with the majority of those losses occurring in the last week, reflecting the widespread investor apprehension.
Huang’s perspective, however, is that AI will function as a complement to existing software, rather than a replacement. He believes AI will leverage established software platforms as tools, effectively augmenting their capabilities. This viewpoint carries significant weight given Nvidia’s central role in the AI boom, positioning the company as a key observer of the technology’s trajectory.
Microsoft: A Diversified Tech Giant
Microsoft (MSFT) is highlighted as a potential buying opportunity following the recent market correction. Despite a 25% drop from its recent peak, the company’s diversified business model – encompassing cloud infrastructure (Azure), operating systems (Windows), gaming, LinkedIn, and GitHub – provides a degree of resilience. Azure’s revenue grew 39% in the most recent quarter, demonstrating continued strong performance. As of , Microsoft’s stock closed at $414.55, with a market capitalization of $3.1 trillion. While free cash flow may be temporarily impacted by increased capital expenditures related to AI initiatives, the company’s overall financial strength and multiple growth avenues make it an attractive investment, trading at a price-to-earnings discount to the S&P 500.
Shopify: Dominating the E-commerce Software Space
Shopify (SHOP) is another stock identified as a potential buy. Despite a 38% decline from its peak in late October, Shopify remains a dominant force in e-commerce software, providing tools for businesses of all sizes to establish and manage an online presence. The company has been proactively integrating AI into its platform through initiatives like Shopify Magic, which automates content creation, personalizes customer experiences, and improves customer service. Shopify’s revenue increased by 32% to $2.8 billion in its most recent quarter, indicating continued growth. As of , Shopify’s stock price was $113.94.
Figma: A Leader in Design Software
Figma (FIG) has experienced a particularly dramatic decline, falling 85% from its peak and a third from its IPO price. However, the company has emerged as a leader in design software, challenging established players like Adobe. Figma is growing rapidly and has achieved GAAP profitability. The company is also actively incorporating AI into its product suite through acquisitions and internal development. The demand for Figma skills is evident in job postings on platforms like LinkedIn, suggesting a strong market position. Despite trading at a price-to-sales ratio of roughly 10, Figma’s potential for continued growth, particularly if it maintains a 30% growth rate, makes it a compelling investment opportunity. As of , Figma’s stock price was $22.45.
Huang’s dismissal of the “software is dead” narrative, coupled with the underlying strength of these three companies, suggests that the recent sell-off may have created a buying opportunity for investors willing to look beyond the short-term anxieties surrounding AI disruption. The expectation is that AI will enhance, rather than replace, the existing software landscape.
