The recent software selloff, driven by concerns over the impact of artificial intelligence (AI) on the industry, has created opportunities for patient, long-term investors. Two stocks, Intuit and Salesforce, stand out for their strong competitive positions and potential for long-term growth, with median price targets implying upside of 100% and 72%, respectively.
Key Points
- Software stocks have declined in value as analysts reassess the impact of AI on the industry.
- Intuit and Salesforce have wide moats and broad portfolios of increasingly integrated software.
- Their valuations look far too low considering their growth outlooks.
Investors are starting to view artificial intelligence (AI) more as a double-edged sword than a panacea for improving earnings across every industry. Software stocks have been hit particularly hard and rather indiscriminately recently as analysts recalibrate their growth expectations across the sector with fears that AI tools will replace the need for various applications.
But the sell-off may have created some great opportunities for patient, long-term investors. Two stocks stand out as maintaining strong competitive positions, and analysts see upside of as much as 100% for shares based on the median price target on Wall Street.
Intuit: 100% Upside Implied by the Median Price Target
Intuit is best known for its TurboTax tax-preparation software and QuickBooks accounting software. It also owns Credit Karma, which monitors credit and recommends new loan products for consumers, and Mailchimp, which provides email marketing tools.
Management expects revenue growth of 14% to 15% this year, fueled by its push to develop an online ecosystem for its software. The ecosystem integrates features from Intuit’s various software and services to promote cross-selling for small businesses.
Intuit’s lower-than-average retention rate for a SaaS business is more due to the high failure rate of small businesses than to any failure of its product to deliver for its customers.
Salesforce: 72% Upside Implied by the Median Price Target
Salesforce offers businesses a wide range of “clouds,” its term for cloud-based software-as-a-service (SaaS). Its products range from sales and customer service to marketing and commerce solutions.
Moreover, it paves the way for its efforts in AI. Salesforce introduced Agentforce in late 2023, which leverages proprietary enterprise data stored in Salesforce’s Data Cloud to complete multistep tasks across the Salesforce software suite.
The median price target on Wall Street is $325 per share, and the stock currently trades for just $190. That implies 72% upside for the stock.
For investors looking to capitalize on the potential of these two stocks, it’s essential to consider the current market trends and the companies’ growth prospects. With the software industry undergoing significant changes due to the rise of AI, Intuit and Salesforce are well-positioned to thrive in the long term.
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