(Feb 27): Wall Street has been dumping software stocks over artificial intelligence (AI) disruption fears, but non-professional investors have been snapping them up.
Retail trading activity in the beaten-down software sector is approaching record levels, data compiled by JPMorgan Chase & Co show, even as the S&P Composite 1500 Software & Services sub-index has slumped almost 20% since the beginning of the year.
While “cracks continued to form in parts of the markets,” retail investors continued to be “supportive of software”, said JPMorgan strategist Arun Jain.
Microsoft Corp was the most favoured pick of retail investors both last week and on a year-to-date basis. Other names that attracted interest from the retail crowd were ServiceNow Inc and AppLovin Corp.
The buying among the retail crowd — often associated with the acronym YOLO for “you only live once” — came while software stocks were buffeted by announcements of new AI products that investors feared could replace services from companies like Salesforce Inc and Adobe Inc.
Monday saw a flare up in the “scare trade”, after a report from little-known firm Citrini Research raised the possibility of wide — spread economic disruption from AI. Nassim Taleb, the author of The Black Swan, also warned about a wave of software bankruptcies.
See also: S&P 500 falls in retreat from risk as block cuts spur AI anxiety
“The selling in the software stocks, in our view, is well overdone and we believe that valuations are attractive at this point,” said Marshall Front, the chief investment officer of Front Barnett Associates.
AI fears don’t seem to have deterred the mom-and-pop investors, who have come in as buyers during the sell-offs. Nvidia Corp, which slid the most in three months on Thursday, lured in a record share of retail dip buyers, according to VandaTrack Research.
The dip-buying was also pronounced in Broadcom Inc., the iShares Expanded Tech-Software Sector exchange-traded fund, and the iShares Semiconductor ETF. To Vanda, retail is tracking for one of the biggest days of buying in months, snapping up US$336 million in single stocks in the first 80 minutes of trading.
See also: Credit fears put Blue Owl on track for worst month since 2022
Retail investors may be sensing value in a market that seems poised to flinch at every announcement of a new AI development, however, incremental, say analysts.
“Given the sell off that we have seen and kind of the indiscriminate nature of it, I think it’s probably not a bad place to be looking for value,” said Walter Todd, the chief investment officer at Greenwood Capital Associates.
The long-term outlook for software companies may be unclear, but it may be easier to bet on the short term, Todd said.
“These stocks have been sold aggressively for multiple weeks, actually multiple months,” he added, noting that it is “pretty easy to see at least a short-term bounce occurring”.
Uploaded by Isabelle Francis
