Key insights
- The author notes that the IGV software index is down 37% from its high. While acknowledging AI disruption risks, they believe current valuations of key software companies (ADBE, CRM, NOW, INTU) are attractive compared to their historical P/E ratios, suggesting potential long-term investment opportunities. They are not calling a bottom but see value despite potential further downside.
As I write this we are in a sizable crash of about 37% down from the high last September on the IGV tech-software index fund. I believe the bear narrative of AI disruption does have some weight to it and should be a real fear for these companies but with the current valuations I just don't see it.
Some of these forward P/E's of these companies vs their 5 year averages:
ADBE 11X vs 5 year average of 32X
CRM 18X vs 5 year average of 45X
NOW 18X vs 5 year average of 58X
INTU 22X vs 5 year average of 42X
If you have a longer time horizon it's hard to imagine a world where these don't all become great investments. They may get "rerated" to lower P/Es over time due to additional risks in their business models but even with that there is great value here.
Not here to call a bottom or anything their could be even more downside ahead but that's the risk you have to take. As always do your own research.