The tech sector has been on a wild ride in recent years, with the rise of artificial intelligence (AI) posing a significant threat to the dominance of established software companies. Stocks like Adobe (ADBE) and Salesforce (CRM) have traditionally been considered leaders in their respective fields, but their shares have plummeted in response to the AI tide.
In a bid to reassess their value, investors are looking to these nine tech stocks trading at their cheapest levels in years. However, the question remains whether they are ripe for a turnaround or represent value traps. To gain insight into this conundrum, we will examine the companies and their prospects for recovery.
1. Adobe (ADBE) – Creative Software Leader
Adobe’s stock has dropped nearly 50% in the past year, causing its forward price-to-earnings (P/E) ratio to fall to around 21. This represents a significant discount for the company’s established leadership in creative software, including Photoshop and Premiere Pro. However, the AI threat poses a significant challenge to Adobe’s core business, as AI-powered tools gain traction.
Analysts remain divided on Adobe’s prospects. Some, like Morgan Stanley, have a ‘buy’ rating and a price target of $430, citing the company’s strong cash flow and growth prospects. Others, like Goldman Sachs, have a ‘neutral’ rating, citing the company’s exposure to the declining ad market.
2. Salesforce (CRM) – Customer Relationship Management (CRM) Leader
Salesforce, another stalwart of the software sector, has seen its stock decline by over 40% in the past year. Its forward P/E ratio now stands at around 24, down from 35 in 2021. This presents a compelling buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s CRM business.
Analysts at Bank of America have a ‘buy’ rating on Salesforce, citing its strong growth prospects and leadership in the CRM market. However, others, like Credit Suisse, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
3. Microsoft (MSFT) – Cloud Computing Giant
Microsoft, the tech sector’s behemoth, has seen its stock decline by over 20% in the past year. Its forward P/E ratio now stands at around 28, down from 35 in 2021. This presents an attractive buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s cloud computing business.
Analysts at RBC Capital Markets have a ‘buy’ rating on Microsoft, citing its strong growth prospects and leadership in the cloud computing market. However, others, like Goldman Sachs, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
4. Alphabet (GOOGL) – Search Engine Giant
Alphabet, the parent company of Google, has seen its stock decline by over 20% in the past year. Its forward P/E ratio now stands at around 22, down from 30 in 2021. This presents a compelling buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s search engine business.
Analysts at Morgan Stanley have a ‘buy’ rating on Alphabet, citing its strong growth prospects and leadership in the search engine market. However, others, like Credit Suisse, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
5. Oracle (ORCL) – Enterprise Software Leader
Oracle, another stalwart of the software sector, has seen its stock decline by over 25% in the past year. Its forward P/E ratio now stands at around 25, down from 35 in 2021. This presents an attractive buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s enterprise software business.
Analysts at Bank of America have a ‘buy’ rating on Oracle, citing its strong growth prospects and leadership in the enterprise software market. However, others, like Goldman Sachs, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
6. SAP (SAP) – Enterprise Software Leader
SAP, another established software company, has seen its stock decline by over 20% in the past year. Its forward P/E ratio now stands at around 24, down from 35 in 2021. This presents a compelling buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s enterprise software business.
Analysts at RBC Capital Markets have a ‘buy’ rating on SAP, citing its strong growth prospects and leadership in the enterprise software market. However, others, like Credit Suisse, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
7. Intuit (INTU) – Financial Software Leader
Intuit, the maker of TurboTax and QuickBooks, has seen its stock decline by over 25% in the past year. Its forward P/E ratio now stands at around 25, down from 35 in 2021. This presents an attractive buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s financial software business.
Analysts at Bank of America have a ‘buy’ rating on Intuit, citing its strong growth prospects and leadership in the financial software market. However, others, like Goldman Sachs, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
8. ServiceNow (NOW) – IT Service Management Leader
ServiceNow, a leader in IT service management, has seen its stock decline by over 30% in the past year. Its forward P/E ratio now stands at around 25, down from 40 in 2021. This presents a compelling buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s IT service management business.
Analysts at Morgan Stanley have a ‘buy’ rating on ServiceNow, citing its strong growth prospects and leadership in the IT service management market. However, others, like Credit Suisse, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
9. Autodesk (ADSK) – Computer-Aided Design (CAD) Leader
Autodesk, the maker of AutoCAD, has seen its stock decline by over 25% in the past year. Its forward P/E ratio now stands at around 25, down from 35 in 2021. This presents an attractive buying opportunity for investors, but the AI threat also poses a significant challenge to the company’s CAD business.
Analysts at RBC Capital Markets have a ‘buy’ rating on Autodesk, citing its strong growth prospects and leadership in the CAD market. However, others, like Goldman Sachs, have a ‘neutral’ rating, citing the company’s high valuation and declining growth rates.
What to Watch Next
As the tech sector continues to navigate the AI threat, investors will be closely watching the companies’ responses to this challenge. Those that successfully adapt to the AI revolution may emerge as winners, while those that fail to adapt may become value traps. In the coming months, we will see whether these nine tech stocks can turn their fortunes around and deliver long-term value to investors.
Conclusion
The AI threat has led storied software stocks like Adobe and Salesforce to trade near their cheapest levels in years. While some analysts see value in these companies, others are warning of value traps. As investors, it is essential to carefully assess the companies’ prospects and adapt to the rapidly changing tech landscape. Whether these nine tech stocks will emerge as winners or losers remains to be seen, but one thing is certain – the stakes have never been higher.
