By Jacob Sonenshine
Nvidia, Microsoft, and other prominent artificial-intelligence stocks are seeing bouts of selling. Investors could easily rotate into the AI laggards.
Wall Street has grown wary that software and internet companies will slow down the pace of their investments in data centers, dragging down chip stocks. As a result, investors are taking profits, and Nvidia, Advanced Micro Devices, and Broadcom are all down double-digit percentages from record highs hit weeks ago.
Software stocks Microsoft, Oracle, and Palantir are seeing the same dynamic after years of outperformance, with steep drops from record peaks, too. The worry there is that returns on their massive AI investments might disappoint the market's expectations.
So if any brief rallies in these stocks conclude with more rounds of profit-taking, investors could easily put the proceeds into cheaper AI names that haven't surged as much over the years. With AI demand growth still in its early stages, investors may want to put some money to work in the AI stocks with less to lose -- and more to gain if they prove that their businesses are vibrant. Some of those are also large companies that have been around for a while, and are still growing earnings.
Stifel analyst Brad Reback expects "a shift in investor sentiment towards the relative safety of incumbent tech given its highly recurring, stable, and very profitable, revenue bases and attractive relative valuations."
Salesforce is one such idea. The stock, up only 14% in the past five years versus the S&P 500's 83% gain, is plainly cheap now.
It trades at just under 20 times analyst's expected earnings for the coming 12 months. That's below the S&P 500's just over 22 times. It's far below the iShares Expanded Tech-Software Sector Exchange-Traded Fund's just over 31 times.
The market has been concerned that revenue for the company's growing AI software products -- which offer a more cost-effective way for businesses to identify sales and marketing opportunities -- hasn't become large enough to help total sales growth reaccelerate, pressuring the valuation.
Now, Salesforce stock is poised to move higher as its AI business is only improving. The company is trying to cross sell more cloud-based -- and AI driven -- products to its existing customers.
Reback says customers look ready to move from adopting Salesforce's "Agentforce" product -- which uses an updated version of AI to help businesses find and market to customers more quickly -- for "proof of concept" purposes to buying it for "production."
If its sales meet expectations for the next few quarters, the market should have confidence that its growth won't decelerate further. That would validate estimates for 10% annual sales growth to just over $50 billion by 2027, stable profit margins, continued share buybacks, and 14% annual earnings per share growth, according to FactSet.
Agentforce's annual recurring revenue for the third quarter grew 330% year over year to $540 million. As Agentforce's ARR continues to grow, it could help boost the company's overall revenue and earnings growth -- boosting the stock.
Other similar stocks Reback mentioned include Adobe, Intuit, and Accenture. They all have underperformed the S&P 500 over the past five years, trade below the software fund's price-to-earnings multiple and have analysts earnings expectations calling for growth.
Don't be afraid to jump in on some of these stocks.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 17, 2025 16:46 ET (21:46 GMT)
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