Shares of e-commerce titan Shopify (TSX: SHOP) have been on the retreat in recent sessions alongside much of the tech sector. Undoubtedly, Anthropic keeps releasing new AI-native tools, and they’re scaring many of the holders of software stocks. But it’s not just software stocks that have been looking lower amid what can only be described as an AI-disruption sell-off.
While it certainly feels overblown at this point, with many software stocks already deep into a bear market (that’s a 20% drop from peak levels), with some of the more-exposed, harder-hit names off closer to 50% from their all-time highs, I do think that this “sell-first” kind of mentality from investors will eventually open the door for some buying opportunities within some of the tech and software scene.
As this software bloodbath is playing out, the mega-cap tech darlings that are supposedly on the right side of this ongoing AI revolution are also getting punished quite harshly. If you’re overweight in tech stocks, it may feel as though you cannot win, regardless of which side you’re on.
Being on the right side of a disruptive shift exposes one to heavy capital expenditures and, with that, unknowns about whether such investments will be wasteful. At this juncture, expectations seem to have been reset, and while I do think AI is a transformative technology, there’s really no telling if the disruptors will stand tall this year or if it’ll take a bit of selling pressure and a few years of polish before the bull has a chance to arrive.
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Shopify took another big hit
While I’m not looking to catch a falling knife of a software play on the way down, especially if we’re talking about commoditized seat-based service-based software, I do think that some software platform plays could soon prove to be a great buying opportunity. For a company like Shopify, I think there are ample reasons to stay the course, even as the negative momentum accelerates and the odds of heftier near-term losses swell as the software sell-off turns into an outright panic.
On Monday’s session, SHOP stock tanked more than 7%. The stock is now off 36% from its high, and it’s not quite clear when the broader tech sector fears will calm down. What if Anthropic and other AI companies keep releasing new tools targeted at specific industries?
Could that mean there’s fuel for software to keep moving endlessly lower? It’s hard to tell. Personally, I think the Anthropic tool news will eventually become less of a market-wide needle-mover. At the end of the day, the software firms at risk probably aren’t headed to zero, especially considering many of them are already poised to gain from their own AI tech.
The great growth-to-value rotation seems to have arrived
My main concern with Shopify has less to do with the net effect of AI (I think Shopify is a huge AI winner as agentic commerce takes off) and more to do with how investors will treat that hefty growth multiple as they turn against pricier stocks and go towards dividend-paying value plays.
At 88.5 times forward price-to-earnings (P/E), Shopify does not come cheap, and as new Anthropic news continues to hammer down tech while driving this rotation into value stocks, I think it’ll be tough to catch a bottom in shares of SHOP. Perhaps waiting for software to bottom out before buying dips could prove wise.
Shopify has real AI-driven catalysts in store, but the market may stay focused on rotating out of growth and into value, especially as volatility stays higher for a while longer.
