Underneath the surface of the TSX Index, there are massive winners making higher highs on the weekly, but they co-exist with colossal underperformers, some of which have crashed. Not corrected or dipped, but crashed and, in some cases, quite viciously. Of course, the AI revolution is unfolding, and it’s causing pockets of euphoria in some places (think the semiconductor names) while causing immense pain and pressure in others (think certain parts of software, most notably Software-as-a-Service or SaaS for short).
If AI delivers on its promises and becomes far more than just a driver of productivity, but a disruptor of traditional business models, including SaaS, questions linger as to whether we’re looking at an overreaction when it comes to the crashed software plays or if it’s too soon in the game to get back into the waters by backing up the truck after a historic sell-off, which, believe it or not, could get a whole lot worse before it gets any better.
Any way you look at it, SaaS is a tough place to be, but if you crave next-level value, though, it’s worth giving some of the names a second look as they look to put in a bottom and start reversing course. In some instances, SaaS plays have already begun to march higher. Some of the less-affected and less vulnerable parts of software are actually on their way to new highs.
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Thomson Reuters stock is down and out
Others have already shot to fresh, new all-time highs. Not all software is created equally, and while there is a ton of uncertainty that not even industry pros can deal with, I do think that when it comes to a former market darling like Thomson Reuters (TSX:TRI), investors might wish to revisit the risk/reward after a 62% nosedive. Indeed, it’s a panic-driven decline, to say the least, but how much of the selling is warranted? While I would not dismiss the potential of AI, I would also not write off a firm that’s continued to pull in a good amount from legal software.
Of course, Anthropic and Claude have taken aim at the legal software world. And while the technology is undoubtedly impressive, even profound, I do think that it’s far too soon to deem that Thomson Reuters’ legal software business is in trouble. At the end of the day, Thomson Reuters has its own AI firepower with CoCounsel Legal. Arguably, the legal software segment looks to be on decent footing.
And after a decent quarterly result delivered a month and a half ago, I think that there might be real value in the name as investors look the other way. At 18.1 times forward price-to-earnings (P/E), shares do seem quite reasonably valued. Maybe not a steal, but a great deal for a company whose moat might be misunderstood. Until Thomson Reuters falls short of earnings, and AI fears turn into negative growth, I think investors might wish to keep shares of TRI on the radar.
