It’s becoming tougher to find undervalued growth ideas, especially with so many investors rushing to get into the hottest AI growth trades. With January choppiness weighing heavily on the broad basket of stocks, though, it might be time to think about picking up some of the former growth darlings on the way down.
Of course, there are plenty of still somewhat mildly expensive, but fairly valued shares of companies out there that could make sense to buy with a $1,000 sum or so, especially if you’ve got an extra bit left over in your Tax-Free Savings Account (TFSA) that’s just sitting in cash, collecting likely limited amounts of interest.
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So, what stands out as a great bet right now?
Constellation Software (TSX:CSU) shares used to be much-loved. But nowadays, it appears to be one of the most hated names in the market, with shares recently collapsing 15% in the past few weeks alone. The software juggernaut is now down close to 45% from its all-time high. Undoubtedly, the name hasn’t just corrected, it’s crashed, and in a vicious way, thanks primarily to AI fears. Could AI technology really be eating into the moats of the big software companies or the industry consolidators? Possibly. Either way, the deep seems overdone.
However, I wouldn’t dare look to catch a bottom as the negative momentum looks to take things to the next level. The latest year-to-date collapse could easily take the high-priced stock back to or even below the $2,000 per-share level. If you’re a shareholder, I wouldn’t panic if you’re in it for the long term and aren’t in a panicked state amid the latest implosion in the software stocks.
The recent crash has more to do with the state of AI and its ability to code software rapidly. Indeed, when you have AI models such as Anthropic’s Claude Code putting together a respectable piece of software in a few weeks, investors should be fully aware of the disruptive impact. Given the profound AI chip demand and the jaw-dropping coding abilities of something like Claude Code, I think investors are right to question the price they pay for some of the more traditional software stocks out there.
AI disruption is real, but the reaction might be overblown
Undoubtedly, there’s the potential to get disrupted, but should the latest free-fall nudge investors to sell now and ask questions later? It’s tough to say. The Claude Code technology is real. But the right price to pay for a former market leader like Constellation is a giant question mark.
You can still believe in agentic AI and its coding abilities while also being bullish on the software companies, especially the ones that are leveraging AI effectively to automate workflows and all the sort.
For now, I’m not even sure what could turn the tide. But I do think that Constellation will find a way to pivot and become an AI winner. In an era where software stands to be disrupted, it’s either embrace AI or fall behind. Constellation stock is priced as though it’s about to be left behind, but I wouldn’t bet against the firm as it looks to get back on its feet. Until then, though, let’s just say I won’t be rushing to buy CSU stock at more than 63.2 times trailing price to earnings. Perhaps only a small nibble is warranted.
