Sure, the internet boom is the closest and perhaps the most convenient environment to compare the AI-driven one we’re currently in. As always, though, some things are different this time around (though, that’s no excuse to bet recklessly on AI stocks with little regard for valuations and tech-driven growth trajectories moving forward), with obscenely priced speculative stocks existing alongside the likes of some fairly priced growth plays in addition to severely-undervalued names in and outside of the tech scene that might even be able to move higher if an AI-led correction were to happen.
If you’re a DIY stock picker, it’s your job to steer clear of the high-risk plays as you look for value, which can still be had in a market that many others may be inclined to dismiss as overheated, overvalued, or even overdue for a painful crash.
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Don’t let AI bubble fears steer you clear of tech
Arguably, all the caution, anxiety, and concern over valuations, as well as the term “bubble” being thrown around, leads me to think that we’re not actually in one, at least not the markets as a whole. Indeed, a frothy, overheated part of the market can correct itself without dragging absolutely everything down. And if you’ve invested through the bear market of 2022, you’ll know that there are places you can be in to limit the damage.
Either way, I think there’s overvaluation within the AI scene that will, in due time, probably face a correction within the next couple of years. But really, we should always be expecting a correction to happen annually. It’s only normal, after all. As such, I think there’s no sense in fearing market drawdowns if you’re well diversified and have a defensive part of your portfolio that can withstand rockier moves in markets.
Constellation Software: The dip looks buyable
But for those investors who’ve diversified while insisting on modest multiples on the shares they buy, I think there’s no reason to panic-sell. Indeed, if you’ve stuck with the blue-chip names with improving growth profiles, don’t feel the pressure to hit that panic button, especially when it comes to high-quality names like Constellation Software (TSX:CSU), which, I believe, is a market bargain hiding in plain sight, now off 25% in three months and just shy of 29% from all-time highs. The stock is not just in bear market territory, but it seems to be rolling over, with the last year or so of gains now wiped out.
Indeed, the stepping away of Mark Leonard has some investors rushing to the exits. While he is a brilliant manager, I think there’s really no sense in hitting the panic button, since Constellation is still the same terrific software play it was before Leonard’s resignation.
Indeed, with a great balance sheet and a formula to acquire its way to better growth, I think the latest dip is a historic buying opportunity in a name whose moat will not erode away as AI takes off. If anything, Constellation looks like an AI winner, as it looks to give some of the startup tech plays a boost as they look to leverage disruptive tech and tools to disrupt new markets.
Personally, Constellation stock looks like a great value that might turn a corner when the market runs over a roadbump into year’s end. Given this, I’d look to consider a position at around $3,700, a high price of admission for retail investors, but a relative bargain compared to what you’re getting.
