Investors are cautious about high-growth tech stocks in 2024 due to market uncertainty and concerns regarding President Donald Trump’s trade policies.
The Nasdaq Composite Index has fallen 6% this year, as investors have shifted away from the best-performing stocks of last year. Software companies are not immune to this decline.
Dow Jones Market Data reports that the iShares Expanded Tech Sector ETF, which includes major software companies, has fallen by 4.5% in this year, and is down by 10% from its closing high of $108.46 reached in February.
Analysts at Evercore ISI, however, believe that the recent sell-off represents a great opportunity to buy.
Kirk Materne, a firm analyst, wrote this week in a research report that investors should “lean in” to software companies, given their attractive prices and potential for AI driven growth.
AI monetization improves long-term outlook
Materne’s top five picks were: Microsoft, Intuit (Snowflake), Workday, Snowflake and Salesforce.
He noted that the five stocks are all trading below their average five-year forward price-to earnings ratios, making them even more attractive following recent declines.
Microsoft, for example, is valued at 27,9 times its forward earnings, compared with its five-year-average of 29.5, while Salesforce is valued 25.9, down from the average of 40.4.
Materne emphasized artificial intelligence as the key growth driver for this sector.
Companies like Salesforce have already integrated AI into their platforms. They offer tools such as Agentforce – an AI-powered tool for customer engagement.
Materne estimates that the product will generate $1 billion in additional revenue by 2026.
He wrote: “While it’s still early, the monetization and growth of Gen AI will continue throughout the rest of the year.”
“We believe that the AI narrative will only grow stronger in the coming year.”
Dim financial forecasts and economic challenges pose risks
Despite the positive outlook there are still some risks.
Recent earnings reports by Salesforce, Microsoft and Intuit include financial forecasts that fall short of analyst expectations. This raises concerns about near-term growth.
The sector could also be affected by broader economic challenges such as a potential slowdown in business spending due to higher tariffs.
Trump’s new tariffs may impact business spending and force some companies to reduce their technology investments.
Materne, however, believes that software firms are relatively immune to these effects.
Many software contracts are based on long-term subscriptions, which limit the immediate financial risk.
Software solutions that focus on efficiency and automation will likely remain in high demand even in a tighter economy.
Materne wrote: “We think the software setup is still favorable if you take a 3-6-month view.”
Evercore’s research suggests that, while risks remain, investors who are willing to endure short-term volatility could find compelling opportunities among software stocks. AI adoption is accelerating and valuations are still attractive.
This post Evercore ISI wants to buy Microsoft, Salesforce, and 3 other software companies amid market pullback first appeared on ICD
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