The Software Selloff Just Created a Massive Buying Opportunity!!

We're living through a massive enterprise software reset. Many on Wall Street and out on Silicon Valley, they're calling it the SAS apocalypse. And for almost a decade, general enterprise software companies, they enjoyed endless valuation multiples. And mostly because they could grow topline revenue just by adding more and more seats to their platforms. But today, the market is ruthlessly cutting down companies that don't have an ironclad technological mode or a direct high margin way to actually monetize artificial intelligence. So that tells us that the days of growth at any cost for standard software as a service platforms are officially over. And you know, you have to think about it. If your enterprise software can be replaced by a custom internal AI agent built by a couple of junior developers over a single weekend, your business model may be in serious trouble. And the market's finally waking up to the fact that a lot of these apps were just user interfaces sitting on top of a basic database. But out of this uh SAS apocalypse, this carnage, we've got a few industrial-grade software giants that are actually expanding their moes. They aren't just surviving the AI reset, they're controlling the infrastructure beneath it. >> Now, before we continue with today's episode, if you want market beating stock picks from our analysts, make sure to check out the pin comment and the description. Using that link gets you a promotional offer as our thanks for being a viewer. Thank you, and let's get back to today's episode. Today we're breaking down three stocks that we think are navigating the storm exceptionally well. Jose, kick us off. >> Thank you, Rachel. And I'm starting with Autodisk, ticker ADSK. The market has been treating it like any other generic SAS stock, getting hit by macroeconomic headwinds. But that is a massive, massive mistake. Autodesk is not a payroll app and is definitely not a marketing automation tool. They own the engineering architecture and construction workflow globally through AutoCAD, Rivet, and Autodesk Construction Cloud. If you want to build a skyscraper, a bridge, a highway, or a car, you have to use their software. In their recent fiscal quarter 1,2027 print, they raise their fullear revenue outlook, guiding for fullyear revenue of over $8 billion alongside incredibly strong non-GAAP operating margins. CEO Andrew just announced a massive acquisition of Mainten X, which connects real world field operations data back into their design ecosystem. They are moving digital twins from static models to predictive AIdriven architectures. They aren't being disrupted by AI. They are the ones embedding it into real world manufacturing and engineering. And when you control the foundational data format for an entire global industry, you don't get disrupted as easily as the market thinks. >> Yeah, I mean, I think it's a a great point. That's a real structural mode that they've built. And AutoCAD is is practically an industry religion. You know, nobody changes their CAD software on a whim because the retraining costs for an engineering firm are astronomical. But I think there's also some uh real world friction here to think about. So Autodesk's customer acquisition costs, their their payback period actually turned negative recently because sales and marketing investments outpaced their incremental revenue growth. Obviously Autodesk is spending a lot of money uh to bring in that next dollar of revenue. The business model is very much tied to the health of the macro economy and very specifically construction and real estate. So I I I think the question that comes to mind is if we see say a prolonged downturn in commercial real estate or high interest rates stalling global infrastructure products. Uh does does Autodesk have that pricing power to keep growing when operating expenses are climbing? >> Rachel, that's definitely a fair push back here on the marketing spending inefficiency and management definitely needs to keep tightening that belt on their goto market execution. But here's why the structural moat wins over the cyclical macro fears. Their locked in deferred revenue and lock-term commitments give them extreme multi-year visibility. Even if a developer slows down a new project, they don't cancel their subscription of licenses, right? Because their entire legacy data history and daily operational workflows exist inside the Autodesk ecosystem. You can't just pause your software subscription when your entire architecture blueprint library is built on the proprietary stack that Autodesk has created. It's an incredible sticky enterprise structure. The market is giving us a discount on a global monopoly because it's miscatategorizing it as something that's going to be replaced by AI. They are shifting away from traditional seatbased licensing into consumption and projectbased tokens, which is what a lot of AI software companies should be doing. Which means as projects get more complex, Autodesk makes more money regardless of how many human heads are actually clicking the mouse and if it could be an AI agent running that software behind it. >> Yeah, I think that's a great point, Jose, and and thank you for that. I want to move on to your second pick. I think this one is a really fascinating business. It sits right at the intersection of enterprise software and the hardware boom. >> Yeah. So this one is Synopsis, ticker SNPS. If you thought kind of Autodesk was the blueprint for construction, Synopsis is the blueprint for AI chip development, right? This is the platform you need to design AI chips and synopsis is one of the kings here in the EDA, electronic design automation software. You cannot design advanced microchips from Nvidia, AMD, or any other players without synopsis. They just reported their quarter two fiscal 2026 numbers, posting non-GAAP earnings per share of $3.35, beating Wall Street estimates. More importantly, very similar to Autoest, they did raise their fullear revenue guidance midpoint to roughly 9.6 billion. Every single big tech company trying to build their own custom AI chip to save power on cost has to buy massive software licenses from synopsis. On top of that, they are aggressive in uh they are aggressively integrating their massive acquisition of answers which allows engineering to simulate physics and thermal stress on chips before they ever go to the foundry. As chips get smaller and more dense, the physics limitations becomes brutal. And Synopsis solves that with their software. >> Yeah. I mean, I think one of the other interesting points to make is if you want to make silicon, you pay the the synopsis tax. But I think we also have to talk about the valuation of the business and there are some messy mechanics under the hood, if you will. Uh synopsis, they're trading at a massive premium. So, they are priced for absolute perfection. And if you look at the company's gap net income for the first half of the fiscal year, there was a sharp drop. uh for example in Q1 to under $und00 million and a lot of that going back to merger restructuring costs complex accounting related to the ANCS integration and if the integration of ANC hits a snag or if the design IP business faces more export restrictions in regions like China I think there's a justifiable concern that that premium multiple could leave investors with a very minimal margin of safety so h how do you square that valuation risk >> I mean Rachel like always you hit the nail on the head When we kind of look at some of the bearish case around here, especially here regarding the gap net income noise and and the geopolitical risk, which is real, the ANC's transaction unfortunately has created a massive bite to swallow and it creates a temporary drag on reported earnings due to any upfront cost um and fees and transaction uh friction. But if you're looking at the underlying non-GAAP net income, which strips a lot of this non-cash accounting adjustments, it was a strong quarter, well over $700 million for quarter 1 alone. Uh CEO is treating this as a transitional integration year. Their total backlog is sitting at well over 11 billion. And when big tech commits to custom chip designs, those are three to five multi-million dollar commitments that don't get cancelled midway. Regarding China though, domesticating EDA software is incredibly difficult. We are talking about decades of mathematical algorithms embedded into these tools. A startup can't just recreate it. Speaking of which, Rachel, I know you brought another key player in this space today. Why don't you tell us about stock number three? >> Yeah, I'm pitching Cadence Design Systems today. It's ticker CDNS. you know, you laid out a strong case for the EDA software sector, but Cadence is really where uh in my opinion, the financial operational efficiency really shines the brightest. You know, Cadence is a company that's kept its head down. It's got an incredible history of executing flawlessly. Routinely puts up gross margins uh well above 80% operating margins touching 30%. So, Cadence's secret weapon right now uh is their palladium and proteium emulation systems. So when companies design a 3 nanometer or a 2 nanometer chip, they can't afford a mistake before manufacturing. A single botched mass set at a TSMC foundry costs tens of millions of dollars. It sets a product timeline back by months and months. So Cadence sells proprietary hardware supercomputers loaded with their software that actually mimic the physical chip before it gets printed. So Nvidia for example, they use cadence systems to test their their Ruben and other upcoming architectures before sending them to production. And their system design analysis business is growing at an exponential rate, more than 20% year-over-year right now. Um they don't have any, you know, integration risks from recent acquisitions. Uh so I do think this is a really efficient um and and well-run play on the silicon boom. Yeah, Rachel, I I love Cadence Margin's profile and their emulation hardware is definitely elite and like you mentioned, right? They don't have a lot of the noise that Synopsis is having. It's basically a cash printer. But one of the things is just the competitive dynamic. Synopsis buying answers wasn't just a random acquisition. It was a defensive and offensive chess move at the same time. By combining chip design with ANSI's world-class macroscale physics simulation, Synopsis can offer a completely unified end-to-end platform for system on chip analysis. They can simulate how a chip behaves inside a server rack, inside a car, or under extreme heat. If Synopsis successfully integrates answers over the next 18 months, doesn't that leave Cadence standalone software looking a bit isolated? Can Cadence actually maintain those 30% operating margins if they have aggressively ramp if they have to aggressively ramp up their own internal R&D spending to match Synopsis's new physics capabilities? Aren't they at risk of losing kind of this full system design battle? >> Yeah, I think those are really important questions, but there's some very good reasons why I don't think this is a concern for cadence investors. I mean, the EDA market is not a winner take all game. It is very much a triop. Obviously, you've got Synopsis, you've got Cadence, you've got Seammens as a third player in this space, but this is a space where major chip designers deliberately use multiple companies to avoid vendor lockins. So, you've got Apple, Qualcomm, Nvidia. They maintain massive licenses with both Synopsis and Cadence because they really want their engineering teams to crossverify designs. That's really built into the business model as well. So, that's something important to note. And and Cadence is really not standing still on the simulation front either. You know, they've rolled out their own organic tools. Uh Millennium is one example. This is a tool that uses AIdriven computational fluid dynamics to simulate aerodynamic and thermal properties. And they're building these tools natively in-house. They're not buying, you know, legacy software companies and trying to stitch uh different code bases together. And that's really really key to their model. Um they're doing good in terms of managing their debt. This is very much a quality compounding software business. And I think that this is allowing them to pivot faster and potentially better than their rivals. >> Yeah, thank you, Rachel. And I I think the bottom line here for this episode is the SAS apocalypse is trying to filter out the weak software players who rely on cheap capital and see expansion. But while it's trying to do this, it's kind of punishing certain stocks that shouldn't deserve to be there, who have strong molds, who have massive data gravity, and who can have mission critical applications that the global economy literally cannot run without. So, let me know in the comments below, fools, what are some of the stocks you guys are looking through the SAS apocalypse? If you guys enjoyed this episode, make sure to hit the thumbs up and the subscribe button, and see you all next time.