According to Goldman Sachs, not all software stocks are losers after the recent debacle in software stocks. Software companies have been among the most oversold stocks in the S&P 500 index in recent weeks and continued to weigh on the overall market during trading Tuesday. The group has come under fire over concerns that artificial intelligence tools could disrupt the traditional “per-seat” subscription model used by traditional software giants, displacing their own products and squeezing companies’ pricing power. Analyst Gabriela Borges wrote in a note to clients on Monday that the rapidly evolving nature of agent technology ultimately makes it difficult to determine and gauge a stock’s terminal value. Borges noted that existing software systems, or systems of record (SoR) companies, continue to own vast amounts of historically accurate data on which AI models depend. “AI technology primarily acts as a powerful intelligent layer rather than a fundamental replacement. AI technology relies on systems of record to maximize its value,” Borges said. “Existing systems of record are a treasure trove of this data. Incumbent SoR companies like SAP, Salesforce, Oracle, and Workday have spent decades building robust processes for data validation, governance, and compliance.” In this environment, the company “continues to look for evidence that domain experience drives higher quality outcomes for agents and consistently improves fundamentals through revenue,” Borges said. In the short term, the analyst named several software companies that Goldman believes can defeat fears of AI disruption. The analyst cited Snowflake, MongoDB, Shopify, and CrowdStrike as software candidates the company has evaluated for purchase. “We emphasize business models with clear architectural moats that extend beyond the application layer.” Snowflake and Shopify stock prices have fallen about 20% and 30%, respectively, since the beginning of the year. Shopify stock remains highly popular among analysts everywhere. Price targets from analysts surveyed by LSEG suggest that Shopify stock could rise about 43%. Mizuho and TD Cowen last week upgraded the e-commerce company following its fourth quarter report, citing Shopify’s strong revenue performance and free cash flow. Similarly, database software maker MongoDB, which has plunged about 17% this year, remains popular among analysts surveyed by LSEG, who predict its stock could still rise more than 28%. MongoDB rebounded in December after beating third-quarter profit expectations and raising its full-year outlook.
