For over a year, leading software stocks formed a stealth bear trend. Adobe Systems (ADBE), for example, traded at over $400 last year. Despite posting solid quarterly results, ADBE stock would drop shortly afterward.
Last week, the SaaS apocalypse returned. Adobe lost 7%. Intuit (INTU), Salesforce (CRM), Autodesk (ADSK), and Synopsys (SNPS) also fell. Just like in February, Anthropic’s AI updates shook up the sector.
Anthropic Claude Mythos is so powerful that the company said that it was too dangerous for the public to use. The software can fix cybersecurity vulnerabilities in software code. But it can also be used for dangerous uses like exploiting vulnerabilities.
Skeptics should question whether the AI would render cybersecurity stocks like Palo Alto (PANW), CrowdStrike (CRWD), or Microsoft (MSFT) Defender out of date. The chances are low that Anthropic’s AI would cause customers to end their software subscriptions to them.
Last week, tech investors rotated out of software names and bought AI hardware suppliers. Nvidia (NVDA), AMD (AMD), Intel (INTC), and Broadcom (AVGO) rose last Friday. Their market capitalization might continue to rise. AI chatbots need more computing power. Nvidia and Broadcom are more than happy to supply the chips. That also gives manufacturers like Taiwan Semiconductor (TSM) a strong boost.
Your Takeaway
Value investors still need to question the stock-based compensation that SaaS firms face. Until that cost drops, the sell-off in SaaS names might continue.
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