Summary

• Software stocks have lost their valuation premium, with the sector shedding roughly 5 points of P/E as agentic AI raises questions about its long term terminal value.
• I see the sell-off as overdone, since the expected growth rates of software firms still sit well above the rest of the market, signaling fear rather than rational repricing.
• Microsoft is my core holding here, trading at 22.7x blended P/E versus a 15 year average of 26.7x, and looks more like an AI beneficiary than a victim.
• ServiceNow is the most AI resilient of my three picks and the cheapest it has been since IPO at 24.95x versus an 88x historical average.
• Intuit is a deep contrarian bet at 11.42x P/E and a 0.8 PEG, where I think the AI disruption fear around TurboTax and QuickBooks is overstated.

Software stocks came under heavy fire this year with S&P Software & Services (XSW) down 13.15% on a year-to-date basis, vs. S&P 500 (SP500) gain of close-to 10%.

If you go back, say last 10-20

Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT, NOW either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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