Investors rotated out of tech stocks in February, sending the Nasdaq Composite down more than 4% for the month. The sell-off was driven by growing concerns over how artificial intelligence could disrupt well-established industries.
However, Wall Street strategists see key distinctions emerging within the tech sector. The recent performance highlighted a dramatic split. As one investment CEO noted, “There was such a stark contrast between the earnings from Nvidia, which we do own, and Salesforce, which we don’t.”
For this strategist, the recent pullback in Nvidia’s share price—along with the stock’s sideways movement this year—represents a buying opportunity. The reasoning is compelling: major tech giants are expected to spend roughly $650 billion this year on data centers built to handle AI workloads, much of it running on Nvidia’s hardware. “What we’ve heard from all the hyperscalers is that they just don’t have enough computing capacity, and that is how you generate revenues,” the CEO explained. “One man’s capital expenditure is another man’s revenue source, and that’s Nvidia.”
In contrast, the same firm decided to exit its position in Salesforce some time ago. “We just didn’t see the growth trajectory,” the strategist said. “We thought there were better places to be.” This sentiment is echoed by broader market concerns. Investors are questioning whether clients of software-as-a-service firms might use AI tools to develop in-house solutions, reducing their reliance on providers like Salesforce.
Furthermore, AI’s potential to increase productivity and reduce headcount could directly impact the traditional pricing models of many software companies, which often charge per user or “seat.” “When you’re selling software by seats, you’re tied to the job market, ultimately,” the CEO added. Economists from a major financial institution have projected a rise in unemployment this year, noting risks from faster AI adoption and the resulting displacement of workers. “If the number of seats are ultimately going to shrink in the next couple of years, that raises concerns,” said a head of research at a major financial data firm.
Instead, some strategists see more compelling opportunities elsewhere, particularly in the memory segment, which is a critical component for AI. “Memory stocks are amazing,” the research head said. “They trade at lower multiples, and the upward revisions are incredible. It reminds me of what I saw in Nvidia two years ago.” Indeed, major memory chipmakers have seen their collective value surge 60% year-to-date, while a key software ETF has fallen 24% since January.
Despite these opportunities, strategists are reluctant to call a bottom to the market rout, even if they view last month’s sell-off as overblown. Analysts from a major financial institution recently noted that concerns about AI disruption in software and other data-intensive industries will be difficult to disprove quickly. They expect investors will require either multiple quarters of evidence proving business resilience or much more depressed valuations before they re-engage with these stocks in a meaningful way.
