While Wall Street engages in heavy selling of software stocks due to concerns over artificial intelligence (AI) disruption, retail investors are choosing to buy against the trend, pushing retail trading activity near historic highs. Data from JPMorgan reveals that although the S&P Composite 1500 Software and Services Index has fallen nearly 20% year-to-date, retail trading activity in the sector is approaching record levels. JPMorgan strategist Arun Jain noted that against a backdrop of "persistent cracks in parts of the market," retail investors continue to purchase software stocks. Among individual stocks, Microsoft (MSFT.US) was the most favored target for retail investors last week and year-to-date. Additionally, ServiceNow (NOW.US) and AppLovin (APP.US) also attracted significant retail capital. Previously, the software sector faced intense selling pressure, partly due to market worries that new AI product releases could replace traditional software services, impacting the core businesses of companies like Salesforce (CRM.US) and Adobe (ADBE.US). On Monday, Citrini Research published a report suggesting the possibility of broad economic disruption from AI, further fueling so-called "fear trading." Nassim Taleb, author of "The Black Swan," also warned that the software industry could face a wave of bankruptcies. However, some institutions believe the current selling is overdone. Marshall Front, Chief Investment Officer at Front Barnett Associates, stated, "We believe the selling in software stocks has been significantly overdone, and current valuations have become attractive." Notably, AI concerns do not appear to have deterred "YOLO" (you only live once) style retail investors. Data from VandaTrack Research shows that when NVIDIA (NVDA.US) experienced its largest single-day drop in three months on Thursday, the proportion of retail investors buying the dip hit a record high. Concurrently, Broadcom (AVGO.US), the iShares Expanded Tech-Software Sector ETF, and the iShares Semiconductor ETF also showed significant signs of retail bargain hunting. Vanda data indicated that within just the first 80 minutes of trading on Thursday, retail investors were net buyers of $336 million in individual stocks, potentially marking one of the largest single-day buying surges in months. Analysts point out that in an environment where the market is highly sensitive—even overly reactive—to every new AI development, some investors may be seeking value opportunities amidst the indiscriminate selling. Walter Todd, Chief Investment Officer at Greenwood Capital Associates, commented, "Given the magnitude of the recent sell-off and its relatively indiscriminate nature, this might be a good time to look for value." He added that while long-term prospects for the software sector remain uncertain, the possibility of a short-term rebound is not low. "These stocks have been aggressively sold for weeks, even months, and are ripe for a technical rebound."
Comments