Dan Ives: "Buy Software Stocks" + Best Ones to Buy Now

Dan Ives says that investors should begin allocating more of their portfolio to software stocks. And I do agree with that. And I think software is going to be a big winner in 2027. And I'm going to share my favorite software stocks to buy right now that are at massive discounts. These stocks are too cheap. But look at this. Over the past five years, software in the S&P has been one of the biggest losers in terms of a market cap waiting. software 5 years ago in 2021 was 11.8% of the S&P. Today 8.7%. The only sector group in the S&P to have lost more is healthcare. Healthcare went from 14.0% to 9.3%. So software is literally grouped into the healthcare category in terms of just how little investors actually own. And if Dan Ies and individuals like myself are correct and AI software companies are going to be some of the biggest long-term winners from AI, there is a massive market disconnect here. And let me blow your mind just a little bit. Everyone is literally all in on the same trade right now. And I think that's why even after the rally in software, if you're bullish on software, you are still very much a minority, a contrarian. And contrarians tend to make money. 22 to 25% of the entire SNP is now directly tied to the physical AI hardware buildout. That's not the crazy part. But if you include the broader ecosystem, meaning the hyperscaler cloud platforms funding the purchases and the energy companies powering them, that exposure surges to over 50% of the index. And I actually think one of the biggest risks over the next 12 to 24 months is not some kind of recession. It's not an economic downturn or even a Fed hiking cycle or a prolonged Iranian war. I think the biggest risk here over the next 12 to 24 months is if you're invested in the indexes. If AI cools down at all, the indexes are going to do very poorly because they're all weighted to the same, you know, handful of stocks. But if we do get a cool down of the AI trade, which I think we're already heading in that direction, the areas that are really going to benefit are the areas that have lost tremendous ground in the index over the past 5 years. These are areas like consumer discretionary, cyclicals, software, nonAI industrials, nonAI financials, the broadening trade. Do you think it's any coincidence that the broadening trade has been outperforming everything else? Small caps have been outperforming the S&P by margins we have not seen in over a decade. You think it's any coincidence that investors are moving capital into these areas that have been kind of forgotten about? I don't think so. But before I share with you my favorite software stocks and why I'm personally bullish on software, robotics, automation, cyber security over the next 12 to 24 months. I think these are the best areas to be invested in right now. I do want to play with you, play for you what Dan IV said about software stocks and how people need to get more allocated to them. Take a listen. >> Tonight's earnings [laughter] as well as a broader tech trade. Let's bring in Dan Ies. He is a partner and senior managing director of Yorkville Ives. Dan, it's always good to see you. >> Great to be here. >> Um, do you like Oracle here? >> Look, I do in my view when you think about the RPO and really the revenue that they have in the backlog. I think the street is almost assuming 50 60% that never happens that they're never going to be able to build out the data center and the conversion of revenue. I think this was a big step in the right direction. And look, this is a penalty box stock. I mean, New York City cab drivers have been bearish in Oracle and they need to ultimately make these steps because it does speak to the broader software trade when you think about Palunteer, Snowflake, Salesforce called a step in the right direction. Now, Oracle, you know, definitely better days ahead from the SAS apocalypse that we saw, you know, even a few months ago. >> I I'll ask you the following question. Is is not necessarily all clear for software, but you got to get some tailwinds now on the back of a couple quarters. Adobe and some other names notwithstanding. >> Well, also institutionally investors, they're caught off sides. So, they're going to have to definitely adjust to owning more software because the software has really been a do not enter zone. And when you think about earnings and what we've seen across the board, the data points are now lining up where I win this. It's an all clear because Adobe is a good example. It's still a lot more wood to chop, but definitely huge step and you're going to see software, I think, outperform as we go into the rest of the year. >> So, Dan, what gets him out of the penalty box? I mean, because again, I I thought these numbers were good enough. Um, especially with the sentiment, what do they have to do? >> Look, Rome wasn't built in a day, so they're going to have to show a few more quarters because I think investors going back to what Nathan talked about, you know, when you had the open AI 300 billion, now they want to make sure that these data centers are going to get it built. So, I think they they did a great job in the conference calls, Blake Shelton like performance terms of what they're sort of navigating, but now they got to show it a few more quarters. Street's not going to give him credit for just one quarter. So if if we don't really think of Oracle as a proxy necessarily, who what would be who would be who's the most important? Is it Nvidia or someone else at this point? Yeah, I think from a software perspective, I think I think what you're >> ai any part of the >> so I think I think the biggest dynamic change was from Palunteer to Snowflake because that really showed that software trades now on the use cases are starting to happen the second third fourth derivative but it all does it starts and ends with the godfather of AI Jensen and Nvidia they have the best purge and I think when you actually see what demand to supply as it's playing out now you're going to start to see second third fourth derivatives play out across software infrastructure cyber security go back cyber security when you look at crowd strike pow out those good examples >> hey so Dan the socks really um had that move right it doubled from I want to say mid-spring to you know the end of Q3 uh Q2 in the end of June and you know it's really chilled out is down about 20 so percent it's really kind of stuck in the mud here but we just mentioned Nvidia it really did find its way back towards those prior highs and when I think about what's going on here that bifurcation doesn't make me more bullish about semis how are you thinking about semis is I I listen I think that a lot of folks have been on this Nvidia train Karen never gotten off of it. You've been on that same way. Um but it seems like right now it seems to be a safer place to be than companies like AMD or Intel right now given where their positioning is relative to you know like you know trying to take on Nvidia. >> Yeah, no doubt. And I think you're going to start you're going to see more investors make that sort of bet. Look the reality is demand and supply today in chips based on what we see in Asia is 13 to1 terms of demand and supply. So that spillover effect, it's of course not just Nvidia, it's going to be Intel, it's going to be AMD. And I think what you see on the semi side, and there's always a question, could semis and software, can they actually both outperform? I think part of what you're seeing now, the hyperscalers from Microsoft really be in front and center. You've seen a lot more money rot that you put all together, we're in the third inning of the AI revolution trade, but they're not all winners. I think Adobe is a good example one. They're going to have to prove it more and more, but it's software now. It's we'll call it somewhere between a green, you know, a light green relative to how investors color your jacket >> kind of like this. It doesn't say a bright green, but now investors feel more of an all queer. You can go after software. I think that was a very fair and balanced take from Dan Ives. And what I would like to add to that is kind of what I've been saying on this channel ever since the SAS apocalypse. The SAS apocalypse never existed. No company is vibe coding their own solutions to software subscriptions. The economics of it don't work. You know, if Walmart wants to make their own Service Now, it would cost 5 to 10 times the amount of just paying for Service Now. It makes no sense there unless they try to sell their vibecoded service now alternative, which who's going to use a Walmart vibecoded service now. The same is true for any startup. You know, if you're a startup trying to compete with Service Now, good luck. Why would anyone cancel Service Now to go with you? A lot of these software companies are deeply embedded in company operations and kind of act as you know uh record holders for these companies. So what I what I think most people get wrong about AI is yeah anthropic has done well you know a lot of it is monthly subscriptions and average Joe's like you and me but when it comes to the enterprise world and actually bringing AI to the real economy it is going to be through software tools the claws the open AIS anthropic claude whatever you want to use. They are going to be the API tools behind the software applications. I've made this example before on the channel. It's kind of like the real estate agent, right? In all 50 states, you do not need a real estate agent to buy or sell a home. But 92% of homes are bought and sold with real estate agents because there's a lot of risk. It's pretty complicated, you know, and same is true to an even more severe extent in the corporate world. And at the end of the day, it's risky to let open AAI and Enthropic just have your data to, you know, learn about what you're doing in your company because at the end of the day, you could be replaced. So, I think we have had a massive misconception in the way that Wall Street views software. I would also say that you know when you look at the margin profile and like what makes a company have a a high or low PE multiple right well what makes a company have a high PE multiple it is is there a lot of cyclical risk in the business does the company have a lot of debt what do the margins look like of that company is the company buying back stock or issuing dividends are they shareholder friendly what does the long-term outlook look like for that company? Right? These are all things that you know make the difference between a company having a PE multiple of 15 or a company have a having a forward PE multiple of 30. Right? It comes down to these things. When I look out there, you know, a company like Google, right? Google went from being a very shareholder friendly business, buying back 2% of the float per year pretty consistently to now diluting investors about 2% of the float in the last 12 months. Google is no longer shareholder friendly. They are actively diluting investors. Now whether or not that'll pay off in the future, I'm not making that that argument right now. I'm saying they went from being capital shareholder friendly to not shareholder friendly. All of your hyperscalers, they are all cyclical to the same trade. What happens if AI demand goes through a hiccup? They all all of their numbers are going to get hurt at the same time, right? whereas they were kind of independent from each other um or the broader economic cycle just a couple of years ago. So diluting investors taking on a lot of debt. I should mention that very cyclical to the AI trade with question marks whether or not they're actually going to be winners from the AI trade. Their margins are going to come down, you know, over time. Google building data centers and running data centers will be a lower margin business than selling ads on Google search. Their margins will all come down. Meta, Microsoft, Google, Amazon, Oracle, all of them, their margins will be coming down unless they're very successful in a one-off tool here or there, whatever, their margins will come down as their data center revenue grows because physical things cannot have better margins than digital things, right? Um, it's almost impossible especially when you're building things like a data center. So when I think about software and I know this is really a long- winded kind of uh answer to this but when I think about software most of them are net repurchasers of stock software companies have the best margins in the stock market they are going to use AI to grow their mo become more valuable to companies they have some of them some of the lowest PEG ratios in the stock market as well because people have been kind of bearish on them for a long time. They have the the least amount of cyclical risk outside of healthcare, right? And and areas like that because why? If you're service now, you're not selling to consumers that can go into a recession. You're selling to Walmart, Home Depot, McDonald's. No matter what happens, they cannot cancel their Service Now subscription and shut down their business, right? Um, for all of those reasons, I actually think software should be a higher PE multiple um, you know, area of the markets than they are today. I think there's a big disconnect here in the way that people look at software companies. Now, I also like robotics and automation and cyber companies as well. I'm going to share with you my top five uh, stocks right now within this arena. I'm also going to share with you more specific uh software stocks as well, but Zebra Technologies, I've talked about this stock a lot on the channel, peg ratio of about 0.5. Anything below one is cheap, stupidly cheap. Anything below or around like a half of one is an asymmetrical opportunity, assuming they're moving in the right direction, the company's growing, things are going well. Zebra Technologies is is bringing AI to the real world in real time. Forward PE multiple of about 16 with a PEG ratio of 0.5. Asymmetrical opportunity by definition. Another one apploven forward PE of about 17. Forward PEG ratio of 0.3 to 0.6. The odds are this company is going to beat earnings probably all the high estimates going forward. Apploving could really have a PE have a PEG ratio of 0.3, which is the second lowest PEG ratio I've ever seen before. This is potentially the most asymmetrical opportunity you have ever seen before from a valuation perspective. Now, we'll see if execution executes or whatnot, but assuming it does, Apploven is crazy cheap. Okay, number three is UiPath. I think Wall Street is wrong about this one. I think uh it's just a little early for mass adoption of AI agents. Companies are not adopting AI agents yet. They are restructuring their data. They are getting ready for that and that will happen over the next couple of years. But UiPath benefits when mass adoption happens and we are not there yet. Walmart is not using AI agents in a massive way, right? They've experimented just like every other company, but they're not actually automating hundreds or thousands of tasks with AI agents yet. So, that's coming. The stock at 13 some dollars per share looks attractive to me. Rubric cyber, this goes for really all cyber. I think uh this one's obvious, but more AI means more cyber security needs. And I think over the next 5 to 10 years, we're going to look back and say, "Damn, how did we not understand the opportunity in front of cyber?" I it to me it seems very just onetoone like easy to understand, but for a lot of people, they don't get it. So, Rubric, that's my favorite uh cyber company as of right now, about a $20 billion market cap. I see that stock as being a $200 billion market cap 5 years from now. I think it's a 10x opportunity at least in the next 5 years assuming AI doesn't go through a major like roadblock or something. Number five is Tesla robotics humanoids. Nobody can compete with Tesla. Other software stocks that I really like Zeta Zeta Global got to like that one. You know it's up a lot. It hasn't come down nearly as much as an apploving a zebra or UiPath, but that is a very solid one as well, especially in the low 20s if we do get any kind of a correction. Again, Rubric, UiPath, Service Now, Zcaler, another cyber name there, HubSpot, MongoDB, Snowflake, Data Dog, Back Blaze Pegas Apploven Reddit Palanteer. I I wouldn't call Reddit a software stock, but you know, I I do like them for the the AI the AI theme. I I I think it's being overlooked potentially as well. Ladies and gentlemen, if you guys want to come trade and invest alongside of us in these opportunities going ahead, that link is down below in the description of today's episode. Hit the like button as well as subscribe to the channel on your way out. Have a good one and I will see you in the next