Key Points:
- Citi identifies software stocks like Microsoft as strong buying opportunities.
- Barclays warns that investors are panic-selling companies viewed as “AI losers.”
- Analog Devices received an upgrade due to the recovery of industrial demand.
- Jefferies calls the drop in AppLovin stock a mistake by the market.
Wall Street analysts are digging through the wreckage of a recent market sell-off to find hidden gems. While fears that artificial intelligence will replace traditional software companies have driven stock prices down, major banks believe the reaction is overblown.
Citi told investors this week that the drop in software shares created a unique chance to buy. The bank screened for companies that saw their stock price fall by at least 10% recently, even though their profit estimates went up. Citi analysts argue that the market has punished these companies too much based on fear rather than facts. They highlighted 22 stocks that are well-positioned for the future, including heavy hitters like Microsoft, Dynatrace, and Palantir.
However, the mood remains tense. Barclays strategists noted that investors are currently in a “sell first, think later” mindset. Traders are showing no mercy to any company they think AI might disrupt, such as those in media, finance, or logistics. Instead, money is flowing into “old economy” sectors like healthcare and commodities, which seem safer from AI automation.
Despite the gloom, Barclays sees a bright spot for chipmaker Analog Devices. The bank upgraded the stock, predicting that a recovery in industrial demand will boost the company’s profits. They believe the company has the cleanest balance sheet among its peers.
Jefferies is also telling clients to buy the dip. They pointed to marketing platform AppLovin, which has fallen about 37% this year. Analysts called this a “great buying opportunity,” arguing that fears about competition from Meta and Google are exaggerated given the company’s strong growth.
In a surprising twist, traditional auto supplier BorgWarner is winning big by pivoting to tech. Deutsche Bank upgraded the company to a “Buy” after it announced a deal to build power systems for AI data centers. Investors cheered the move, sending BorgWarner shares up more than 22% on Wednesday.
