Ives Sees Software Stocks as Undervalued Amid AI-Driven Sell-Off

Top tech analyst Dan Ives has described the current sell-off in software stocks as 'the most disconnected from business fundamentals' he's seen since the late 1990s. The sell-off has led to significant losses for leading software companies, including Microsoft (MSFT), Salesforce (CRM), and ServiceNow (NOW).

However, Ives remains bullish on these stocks, citing strong recent earnings results that have supported his view. Microsoft's revenue increased by 18% year-over-year in the last quarter, with demand surging across its Azure enterprise cloud platform and paid Microsoft 365 Copilot seats exceeding 30 million.

ServiceNow's subscription revenue continues to grow at high rates, up 23% in constant currency in the second quarter. The company closed 123 deals worth over $1 million, with strong momentum in AI-related contracts. Salesforce also posted a 14% year-over-year increase in first-quarter revenue, beating consensus analyst estimates for the second straight quarter.

Ives argues that software is at the 'heart and lungs' of the AI build-out, and customers are turning to trusted providers like Microsoft, ServiceNow, and Salesforce to handle AI integration, workflows, and security. However, investors will need to watch out for potential headwinds, including heavy investment in AI infrastructure by Microsoft and the risk that AI agents may reduce the need for software licenses.