Why Software Is The Play For Value Investors; 3 Stocks And 1 ETF To Buy And Hold

If you’re a value investor, you need to take a hard look at software stocks. While I am not an expert on AI or software, the valuations have become so cheap that the risk-reward equation is now strongly in favor of software.

If the worst case scenario in which AI significantly erodes these companies legacy positions inside large corporations fails to play out, these stocks will do well. If, in a best case scenario, these companies can actually integrate AI to improve their platforms and become even more indispensable to corporations, many of these stocks could double or triple in the next 3-5 years. Let’s take a look at three that are screaming buys IMO.

Salesforce (CRM). It’s incredible to me that CRM can now be had for 11x current year EPS guidance. It’s very hard to find any stock in this market trading at 11x, much less one as high quality as CRM. CRM is guiding full year constant currency revenue growth to 10-11%. To date, there appear to be zero impact from AI on their business. I was thrilled to see that CRM used the selloff in its shares to buy back $27 billion worth of shares in their last quarter, reducing the average diluted share count to 871 million from 940 million on January 31.

Intuit (INTU). The long time leading maker of financial software, including QuickBooks and TurboTax, also trades at 11x current year EPS guidance. INTU is guiding 2026 revenue growth to 13-14%. TurboTax and QuickBooks Online revenue grew 7% and 22%, respectively, in the quarter ended April 30. Like CRM, to date AI has had zero impact on their business.

Adobe (ADBE). ADBE is the cheapest of all the software stocks trading at 8x current year EPS guidance. It’s rare to see a stock trading at a single digit P/E in this market, especially one with the pedigree of ADBE. ADBE is guiding full year revenue to increase by 12%. In other words, while the fears about AI are showing up in the stock price, they are not yet showing up in the results. ADBE repurchased 8.5 million shares during the quarter ended May 29, reducing the average diluted share count to 402 million from 411 million.

The bottom line is that even though these stocks are outside of my circle of competence, it still makes sense to at least nibble on them because the valuations are discounting a doomsday scenario. If that scenario fails to play out, the stocks will do well. If my bull thesis plays out – that these companies are able to integrate AI in order to improve their offerings and further entrench themselves inside corporations – these stocks could double or triple over the next 3-5 years. Value investors should be licking their chops over the prices at which these great software companies can currently be owned.

I also like ServiceNow (NOW) and Synopsys (SNPS). For investors who want to buy a basket of software stocks, the iShares Software ETF (IGV) is a great way to do so. I own it as well.