Kevin Xu
Founder of AfterHour, CEO of Alpha
High-quality software stocks such as ServiceNow, Cloudflare, Figma and Palantir look set to gain as money eventually rotates out of crowded semis, memory, data centers, AI infrastructure, space and defense. Software is underloved, and these names rose in sympathy with Snowflake's strong earnings, possibly the start of a rotation. The quiet third month of the quarter is a good time to position for gains into mid-July earnings, and insider buying is a signal worth following. x.comÂ
Software's relative strength and sound finances make institutional rotation from semis plausible. It could lead while semis consolidate, despite slow growth at some firms; the market rewards cash flow, healthy balance sheets and manageable debt. Salesforce, ServiceNow, Palantir, Shopify and Workday hold up; SAP's cloud and AI shift, Instacart's massive 10-month base, Veeva's massive five-year base and Atlassian's Stage 2 strength add to the case. Semis may still rally; the view can change. x.com … Show more
Software stocks such as Snowflake, Salesforce and CrowdStrike could be strong tomorrow as money rotates out of end-of-the-world names. x.comÂ
Security software is arguably more of an AI bubble than semiconductors. Firms are bid up to nosebleed multiples on moderate AI-related revenue acceleration while facing medium- to long-term risks from Microsoft, Google and the AI labs and a 10-year Treasury yield above 5%. Their forward P/Es rest on non-GAAP earnings that exclude large stock compensation. A reversal could come from results missing high buy-side bars, security share gains by Microsoft or Google, or AI lab security launches. x.com … Show more
Snowflake is one of the best software names to catch a rotation out of AI, data center and quantum plays into stocks that actually grow their margins with AI. On the chart, a power gap was followed by a flush-out one day and a regain the next. x.com x.comÂ
Snowflake looks like the next big mover: a leading software name one step from a base breakout while software sentiment sits at lows. x.comÂ
Palantir, Salesforce and Adobe are best avoided amid AI software disruption fears, even as best-of-breed software names. Cult stocks need constant momentum, and once it breaks, valuation, rotation and technical selling hit together, as happened with Tesla. Palantir getting back to $100 was never expected. x.comÂ
Quality software has room to run and semiconductors' correction has more to go, because positioning is unwinding from opposite extremes. Semiconductors entered the week at the 100th percentile of positioning and software at the 0th, so the rotation is a correction in the most crowded trade. The KOSPI fell 5.5%, with SK Hynix down 9%. AI demand has not changed, but positioning must clear first: stay long Snowflake, Datadog, Fortinet and CrowdStrike, and reduce semis into any bounce. x.comÂ
Money is likely to rotate from crowded, richly valued AI hardware into undervalued large-cap AI beneficiaries in software, fintech and power. Microsoft's Copilot monetization is just starting, Oracle's cloud is accelerating at a discount to hyperscalers, ServiceNow gains from agentic automation, Snowflake's valuation is long compressed, and Salesforce is overlooked. SoFi gains from rate cuts, Robinhood from crypto and options, and Constellation and Vistra from power, AI's bottleneck. x.comÂ
Software stocks are a costly place to wait because the whole sector stays hated until sentiment shifts, so ServiceNow, Zeta, Reddit, AppLovin and Rubrik are off-limits until then. Even names not really disrupted by AI, like Reddit, trade with the group's sentiment, and many are down YTD in the biggest rally in years. Holding through that carries a big opportunity cost; better to pay a 10% premium after sentiment turns. Reddit has the users and will not be replaced by AI, but now is not the time. … Show more
Money should rotate from software back into semiconductors as software multiples get frothier, a contrarian call against the current narrative that SaaS has an AI tailwind. x.comÂ
