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Dan Ives says investors should start allocating a larger portion of their portfolio to software stocks. I agree with this and believe that software will be the big winner in 2027, so I'll share my favorite software stocks that are worth buying now at deep discounts. These stocks are too cheap. But look at this.
Over the past 5 years, software has been one of the biggest outsiders in the S&P by market capitalization share. Five years ago, in 2021, the share of software in the S&P was 11.8%. Today—8.7%. The only sector group in the S&P that lost more was healthcare. The share of healthcare fell from 14.0% to 9.3%.
So, software has effectively found itself in the same category as healthcare in terms of low investor interest. And if Dan Ives and people like me are right, and AI companies will be some of the biggest long-term winners from AI, then there's a huge market gap here. Let me surprise you a little. Now everyone has essentially bet on the same asset, and I think that's why, even after the rise of software, if you believe in this sector, you are still in a significant minority, playing against the market, and such players usually make money.
Between 22% and 25 % of the entire S&P index is now directly linked to building physical infrastructure for AI. This isn't the craziest thing, but if you add in the broader ecosystem, i.e. the hyperscale cloud platforms that fund these purchases and the energy companies that power them, the impact grows to over 50% of the index.
And I actually think that one of the biggest risks over the next 12 to 24 months is not some kind of recession, not an economic downturn, not a Fed rate hike cycle, or a protracted war in Iran. I believe the biggest risk for the next 12-24 months comes if you invest in indices. If the hype around AI dies down even a little , the indices will perform very poorly because they all depend on a handful of stocks.
But if we see a cooling of “AI trading,” which I think we are already heading for , then the areas that will really benefit are those that have lost huge positions in the index over the past 5 years. These are sectors such as consumer goods, cyclical industries, software, non-AI manufacturing, and non-AI finance.
Market expansion: do you really think it's a coincidence that it's ahead of everything else? Small-cap companies are outperforming the S&P by a margin we haven't seen in over a decade? Do you think it's a coincidence that investors are moving capital into these areas that everyone seems to have forgotten about?
I do n't think so. But before I share with you my favorite software stocks and why I'm personally bullish on software, robotics, automation, and cybersecurity over the next 12-24 months, I believe these are the best industries to invest in right now. I want to show you what Dan Ives said about software stocks and why people should increase their stake in them.
Listen. Ives' profits, as well as the broader technology trade. Let's invite Dan Ives. Aha. He is a partner and senior managing director of Yorkville Ives. Dan, always good to see you. Do you like Oracle at this stage? Look, in my opinion, when we talk about RPO and really the revenue that they have in the order book.
I think Wall Street is almost assuming 50-60% that this will never happen. So they will be able to build a data center and convert revenue. I think it was a big step in the right direction. And listen, this is an action that is in the "penalty zone." I mean, New York cabbies are embarrassing Oracle, and they ultimately need to take these steps because it's about the broader software trade.
When you think about Palantir, Snowflake , Salesforce—this was a step in the right direction . Now Oracle, you know, they definitely have better days ahead of them after the SaaS apocalypse that we saw a few months ago. I'll ask you this question. It doesn't necessarily mean a "green light" for software , but you've got a tailwind after the last few quarters, despite Adobe and some other names.
Well, institutional investors are also caught off guard. Therefore, they will have to radically adapt to owning more software, because software was truly a no- go zone. And if you think about the earnings and what we've seen overall, the data points are now aligning in a way that I wouldn't say it's a complete "green light," because Adobe is a good example, there's still a lot of work to do, but it's definitely a huge step, and you'll see software outpacing the market by the end of the year.
So, Dan, what will help them get out of the " penalty zone "? I mean, because again, I thought those numbers were good enough, especially given the sentiment. What do they need to do? Listen, Rome wasn't built in a day, so they'll have to show results in a few more quarters. Because I think investors are going back to what Nathan was talking about , you know, when OpenAI was valued at $300 billion, now they want to make sure that these data centers get built.
So I think they did great on the conference call, I would say, gloomy in terms of the metrics and the environment they're operating in, but now they need to show results for a few more quarters. Wall Street won't give them credit for just one quarter. So, if we don't consider Oracle a mandatory proxy indicator, then who would be ?
Who could it be? Who is the most important? Is it Nvidia or someone else at this point? Yeah, I think from a software perspective , I think what you're... Yeah. That's right. So I think the biggest dynamic change was between Palantir and Snowflake, because it really showed that software is now being traded based on ...
Use cases that are starting to materialize. Second, third, fourth derivatives. But it all begins and ends with the godfather of AI, Jensen from Nvidia. They have the most advantageous position . And I think when you see how supply and demand actually evolve. Now you will see how the second, third and fourth derivatives in software, infrastructure and cybersecurity will begin to manifest.
Let's get back to cybersecurity. If you look at CrowdStrike, Palo Alto—those are great examples. Hey Dan, the SOXX index really made that leap, didn't it? It doubled from, I would say, mid- spring to, you know, the end of the second quarter, the end of June. And, you know, he cooled down significantly.
It fell by about 20-plus percent. He's really stuck in the mud here. But we just mentioned Nvidia. She has indeed found her way back to her previous highs. And when I think about what's going on here, this divergence doesn't make me any more optimistic about semiconductors. What do you think about the semiconductor sector?
Listen, I think a lot of people have been on this Nvidia train, Karen. They never left it. You were on the same path. But it seems like it's a safer place now than companies like AMD or Intel, given their positioning in terms of trying to compete with Nvidia. Yes, without a doubt. And I think you'll see more investors making that bet.
Look, the reality is this: the supply-demand ratio for chips right now, judging from what we're seeing in Asia, is 13 to 1. So this spillover effect is not just for Nvidia, of course, but also for Intel and AMD. And I think what you see in the semiconductor sector, and the question always arises: can both semiconductors and software perform well at the same time ?
I think part of what you're seeing now is hyperscalers like Microsoft coming into the spotlight. You've noticed that a lot more money is flowing there. But when you put it all together, we are only at the beginning of the AI revolution. However, not all of them will be winners. I think Adobe is a good example.
They will have to prove it again and again. But now it's software's turn . We'll call it something in between green, you know, light green, depending on how investors view the color of your jacket. It's something like this . It's not bright green, but now investors feel like they 've got the "green light" to invest in software.
I think that was a very fair and balanced view from Dan Ives. And what I would like to add to that is what I've been saying on this channel since the so-called " SaaS apocalypse": that apocalypse never existed. No company builds its own solutions instead of subscribing to software "on intuition". It is economically unprofitable.
You know, if Walmart wanted to build their own ServiceNow, it would cost 5-10 times more than just paying for ServiceNow. This doesn't make any sense unless they try to sell their ServiceNow alternative, but who would use a product from Walmart? The same goes for any startup: if you're a startup trying to compete with ServiceNow, good luck.
Why would anyone give up ServiceNow for you? Many of these software companies are deeply integrated into operational processes and act as a kind of "archives" for these firms. So, I think most people are wrong about AI, thinking that Anthropic has succeeded because of monthly subscriptions from regular users like you or me.
But when it comes to the corporate world and the real implementation of AI in the economy, it will happen through software tools. Claude, OpenAI, Anthropic Claude— whatever you want to use . They will become API tools on which software applications will be based . I've given this example before on the channel.
It's like a real estate agent, right? In all 50 states, you don't need a realtor to buy or sell a home. But 92% of homes are bought and sold through realtors because it involves a lot of risk. It's quite difficult, you know? And the same applies, even more so , to the corporate world. Ultimately, it 's risky to let OpenAI and Anthropic simply get your data to, you know, study your company's operations, because they could eventually replace you.
So I think we have a misconception about how Wall Street perceives software. I would also like to say that, you know, when you look at the margin profile, and what makes a company have a higher or lower P/E ratio, right? So, what makes a company's P/E ratio high? Are there many cyclical risks in this business?
Does the company have a lot of debt? What does this company's margin look like? Does the company buy back shares or pay dividends? Are they shareholder friendly? What are the long-term prospects for this company, right? These are all the things that, you know, make the difference between a company with a P/E ratio of 15 and a company with a forward P/E ratio of 30, right?
It all comes down to these moments. When I look around, for example, at a company like Google, right? Google has gone from being a very shareholder-friendly business that has fairly consistently bought back 2% of its outstanding shares each year to a company that has diluted investor shares by about 2% over the past 12 months.
Google is no longer shareholder-friendly. They are actively diluting investors' shares. Whether it will pay off in the future—I wo n't argue about that now . I'm saying they went from being shareholder equity friendly to being unfriendly . All your hyperscalers are cyclically dependent on the same trade.
What happens if demand for AI experiences some difficulties? Their performance will suffer at the same time, right? Although just a few years ago they were somewhat independent of each other or the broader economic cycle. So, the dilution of investor shares, the accumulation of large debts—it's worth mentioning this too—the high cyclicality of AI trading, and great doubts about whether they will become real winners from the development of AI.
Their profits will decline, you know, over time, building and operating data centers for Google will be a less profitable business than selling ads on Google Search. Their profits will decline. Meta, Microsoft , Google, Amazon, Oracle, all of them. Their profits will decline. Unless they achieve great success with some individual instrument here or there, it doesn't matter.
Their profits will decline as data center revenue grows , because physical things can't have better profits than digital things . Isn't that right? Um, that's almost impossible. Especially when you're building things like a data center. So when I think about software, and I know this is a very long and drawn-out answer, but when I think about software, most of them are net buyers of their own stock.
Software companies have the best returns on the stock market. They are going to use AI to expand their moat and become more valuable to companies. They also have some of the lowest PEG ratios in the stock market, as people have been quite pessimistic about them for a long time. They have the least cyclical risk outside of healthcare, right?
And similar areas. Because why? If you're ServiceNow, you're not selling to consumers who might be in a recession, you're selling to Walmart, Home Depot, McDonald's. No matter what happens , they can't cancel their ServiceNow subscription and close their business, right? Um, for all these reasons, I actually think software should have a higher P/E multiple than it currently has in this market segment.
I think there is a big gap in how people view software companies. Additionally, I also like robotics, automation, and cyber companies. Now I will share with you my five best stocks in this area. I'll also talk about more specific software promotions, but Zebra Technologies, I've talked a lot about this promotion on the channel.
The PEG ratio is about 0.5. Anything below one is cheap, ridiculously cheap. Anything below or near half of one is an asymmetric possibility. Assuming they are moving in the right direction , the company is growing, things are going well. Zebra Technologies is bringing AI to the real world in real time.
Forward P/E multiple is around 16 with a PEG ratio of 0.5. Asymmetric opportunity by definition. Another one, AppLovin. Forward P/E around 17. Forward PEG ratio from 0.3 to 0.6. This company will most likely exceed all the highest earnings forecasts in the future. AppLovin may indeed have a PEG ratio of 0.3.
This is the second lowest PEG ratio I have ever seen. From a valuation perspective , this is potentially the most asymmetric opportunity you've ever seen. We'll see how the plans go, but if everything works out, AppLovin is incredibly cheap. Of course? Number three is UiPath. I think Wall Street is wrong about this company.
I think it's still a bit early for the mass implementation of AI agents. Companies are not yet switching to AI agents. They are currently restructuring their data. They are preparing for this and it will happen over the next few years, but UiPath will benefit from mass adoption, and we are not at that stage yet.
Walmart doesn't use AI agents on a massive scale, does it? They have experimented like any other company, but they are not yet automating hundreds or thousands of tasks with AI agents. So, that's still ahead. Shares at $13-something apiece look attractive to me. Rubrik, cybersecurity. This actually applies to the entire field of cybersecurity.
I think it's obvious: more AI means more need for cybersecurity. And I think in 5-10 years we'll look back and say, "Damn , how could we not understand the opportunities that cybersecurity presents?" To me, this seems like a very direct connection, easily understood. But many people don't understand this.
So, Rubrik is my favorite cybersecurity company today, with a market cap of around $20 billion . I see this company with a capitalization of $200 billion in 5 years. I believe this is a 10x growth opportunity over the next 5 years. Assuming AI doesn't encounter any major obstacles. Number five is Tesla, robotics, humanoids.
No one can compete with Tesla. Other software stocks I really like: Zscaler, Zscaler Global. I can't help but highlight it. You know, she's grown a lot. It hasn't fallen as much as AppLovin, Zscaler, or UiPath, but it's also a very solid company, especially if the price drops to 20 or so in the event of a market correction.
Again, Rubrik, UiPath, ServiceNow, Zscaler, another cybersecurity company . HubSpot, MongoDB, Snowflake, DataDog, Backblaze, Pegasystems, AppLovin, Reddit, Palantir . I wouldn't call Reddit a software stock , but I like them in the context of AI topics. I also think they are potentially underestimated.
Ladies and gentlemen, if you would like to trade and invest with us in these future opportunities, the link to that is below in today's release description. Hit the like button and subscribe to the channel before you go. Have a nice day, and see you in the next video.
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