There’s a buzz in the investment community about how artificial intelligence (AI) might disrupt traditional software companies, and this concern is leading to some opportunities for savvy investors looking to grab high-quality stocks at lower costs.
The latest chatter in finance revolves around the idea that AI could significantly shake up current software businesses. New tools from well-funded AI research labs enable developers to create projects just by using natural language prompts. This has investors anxious, as they worry this could spark a surge of competition that impacts established software providers.
However, I think this fear might be a little exaggerated, and it actually opens the door for investors to scoop up quality software companies at attractive prices. Here are two software stocks that could see substantial gains amidst this bearish market, according to what Wall Street is saying.
Wix’s Growth Potential
Wix.com (WIX -2.42%) stands out as a platform designed for easy website development, allowing users to create sites without any coding skills. It’s true that Wix’s shares have taken a hit, plummeting nearly 70% last year. But given that Wix has been around for a decade, it seems rash to sell off just because of the rise of low-code development tools.
Currently, Wall Street has an average price target of $151 for Wix, while it’s trading around $72 at the moment.
Interestingly, Wix is also rolling out new AI tools aimed at enhancing its website builder, which could broaden its market reach. The company recently reported a revenue growth uptick to 14%, up from 13% a year ago. While it’s not a massive leap, it suggests that AI isn’t stunting Wix’s growth in website development.
The company has also made a strategic acquisition of Base44, a startup that helps users create mobile apps without coding, fitting in nicely with its platform. Although Base44 had little revenue at the point of acquisition, it was projected to hit $50 million in annual recurring revenue by 2025—a remarkable growth trajectory that is likely to continue.
With a trailing 12-month free cash flow of $570 million and a market cap of under $4 billion, this seems like a prime opportunity for investors looking for solid growth stocks at competitive prices.
Adobe at a Discount
Adobe (ADBE +0.51%) has experienced a significant decline of nearly 45% over the past year, as concerns mount about the impact of AI on its suite of products, which caters to creatives through video and photo editing tools, app development, and more. The stock currently sits at $258, while analysts have an average target of $429.
Some believe that small agencies could replicate Adobe’s robust offerings simply by asking an AI. Yet, marketing teams often prefer to pay for convenience rather than trying to build software from scratch.
Competitors like Figma and Canva have emerged, posing real challenges to Adobe’s market dominance, but the company seems viable. Last quarter, Adobe achieved a record revenue of $6.2 billion, bolstered by a solid order backlog and its own share buybacks.
For a decade, Adobe’s revenue has seen a consistent upward trend and is likely to keep climbing as they attract new customers and adjust subscription prices. Given that its stock trades at just 12.5 times operating earnings—one of its lowest ratios—this might be an ideal moment for potential investors to consider purchasing.
Is AI a Genuine Threat?
While it may now be easier for developers to create competing products against Wix or Adobe, it doesn’t automatically imply that customers will just abandon trusted software solutions they’ve relied on for years. Transitioning entire operations to AI-generated software carries significant risks, especially when reliable options from companies like Wix and Adobe are already in place.
The notion that a small business using Wix or a marketing team depending on Adobe would suddenly embrace a coding replacement solution seems a bit far-fetched. Although AI disruption is a legitimate concern, it certainly doesn’t imply that established software will become obsolete overnight, nor that everyone will spend their time coding replacements using AI tools.
So, despite what the headlines might suggest, there’s no need for alarm over stock price declines. Now might be a great time to consider investing in Adobe and Wix.com.
