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Wall Street Shifts: From Software to 'HALO' Assets
24 Feb
Summary
- Analysts cut price targets for major software companies like Workday and Salesforce.
- New 'HALO' theme favors companies resilient to AI disruption.
- Valuations of tech stocks have compressed while cyclicals appear stretched.
Recent Wall Street research indicates a growing sentiment against software stocks, with numerous price target cuts for companies including Workday, Autodesk, and Salesforce. Even cybersecurity firms like CrowdStrike and Palo Alto Networks are feeling the pressure. This shift is attributed to the increasing impact of AI, prompting a move towards the 'HALO' (Heavy Asset, Low Obsolescence) investment theme.
The HALO theme prioritizes companies deemed resilient to AI disruption, unlike asset-light tech giants. Sectors like energy, industrials, materials, staples, utilities, and healthcare have benefited, seeing increased valuations above their five-year averages. Notably, the industrials sector is at a three-year high, and energy is near a multi-year peak.
Conversely, information technology and communication services sectors have seen valuations fall below their five-year averages. Consumer discretionary, including Amazon, has performed better due to its tangible assets. This broad market rotation suggests that prior secular growth darlings are being devalued, while newly favored cyclical stocks may be overextended.
Investor uncertainty surrounding AI's impact on future earnings is creating mistrust in current valuations. While tech stocks appear cheap based on present estimates, and HALO stocks trade at a premium, fear of AI disruption clouds judgment. The market may be overshooting fundamentals in both directions, highlighting the importance of stock selection and diversification.
