The Software Bear and a Couple o’ Clever Horses

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Now, listen here. The market, that fickle beast, has taken a right proper tumble, particularly amongst them software fellers. The S&P North American Technology Software Index, a fancy name for a list o’ 111 companies tryin’ to sell you bits and bytes, has lost a third o’ its value since last September. A bear market, they call it. Seems to me, it’s less a bear and more a whole menagerie o’ worries, and the root o’ it all, wouldn’t ya know, is this here artificial intelligence.

Folks are gettin’ the vapors, see, thinkin’ these AI contraptions will upend the whole apple cart. They reckon these “agents,” as they call ’em, will do the work o’ honest folks, cuttin’ into profits and leavin’ everyone a bit poorer. Anthropic, a company makin’ these clever machines, has gone and built plugins for their “Claude” tool that can automate everything from sales pitches to legal mumbo-jumbo. It’s enough to make a man worry about his job, I tell ya.

Now, some smart fellers, like that Jensen Huang over at Nvidia, say this sell-off is pure poppycock. They point out that a heap o’ these software companies are tryin’ to add AI to their products, not be replaced by ’em. Kriti Gupta, a strategist at JPMorgan Chase, writes that the market is sellin’ everything willy-nilly, like a panicked flock o’ geese. Seems a bit irrational, don’t it?

That’s where a patient investor might find a bit o’ opportunity. Wall Street, in its wisdom (or lack thereof), thinks that Microsoft (MSFT 3.35%) and Cloudflare (NET 9.69%) are undervalued. Undervalued, mind you, in a market where folks are payin’ a king’s ransom for promises o’ future riches. A curious thing, that is.

Microsoft: A 52% Climb, If the Stars Align

Microsoft, now there’s a company that’s been around the block a few times. They got their fingers in a heap o’ pies – office work, business plannin’, security, the whole shebang. They’ve been addin’ this “Copilot” AI to their software, and folks seem to like it. Satya Nadella, the feller runnin’ the show, says paid Copilot seats jumped a mighty 160% last quarter. That’s a heap o’ folks trustin’ a machine to do their thinkin’ for ’em, if you ask me.

And then there’s Azure, their cloud computin’ service. They’re still chasin’ Amazon Web Services, but they’re gainin’ ground. They’ve done a clever thing by integratin’ Azure with their other software and makin’ it work well with these “hybrid clouds” – whatever those are. And they’re mighty strong in this artificial intelligence business, too.

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Cloudflare: A 40% Upswing, Perhaps

Cloudflare, now that’s a company that’s buildin’ things – application services, network security, all sorts o’ infrastructure. They let businesses build and deploy applications, and they do it fast. They operate one o’ the fastest cloud networks in the world, protectin’ about 20% o’ all the websites out there. A considerable feat, I reckon.

Morgan Stanley says Cloudflare is well-positioned to benefit from all these AI agents. They provide the speed and security these machines need, and their platform works with every major cloud provider. That sets ’em apart from the big boys like Microsoft and Amazon.

Cloudflare reported some solid numbers last quarter. The number o’ payin’ customers jumped 39%, and they’re keepin’ those customers happy – revenue per customer jumped 20%. Revenue rose 33% to $614 million, and profits increased 47%. A healthy performance, indeed.

The stock is down 31% from its high, partly ’cause Anthropic released a security tool that scans code for vulnerabilities. The stock still trades at 28 times sales, which is a bit rich, but tolerable for a company whose revenue is forecast to grow at 45% a year through 2027.

Wall Street’s median target price is $245 a share, which is a 40% jump from where it is now. I’d start with a small position in Cloudflare and add more shares if the price drops another 15% or so. A cautious approach, but a sensible one, wouldn’t you say?

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2026-02-24 12:12