"Software panic sell-off" - Who are the winners and losers? Wedbush and Goldman Sachs provide some insights.

Under the rapid development of artificial intelligence, the market has fostered a panic of “AI replacement,” and the US stock software sector has recently experienced a significant sell-off. In this context, besides key software stocks, Goldman Sachs has named alternative asset management firms and direct lending institutions as also being impacted. However, some experts, including Wall Street investment bank Wedbush analyst, still see investment opportunities related to this trend.

Dan Ives, Head of Global Technology Research at Wedbush Securities, stated that this year will be Apple’s breakout year. In an interview, Ives predicted that artificial intelligence could increase the company’s per-share valuation by “$75 to $100,” dismissing concerns about European regulators and highlighting Apple’s proactive strategic positioning in consumer AI. He compared this situation to Alphabet’s strong performance last year.

Jeff Kilburg, Founder, CEO, and Chief Investment Officer of KKM Financial, pointed out that investors have been selling previous winners like Nvidia and Meta, and shifting to buy laggards such as Apple and Alphabet, which offered buying opportunities during the sluggish period following tariff announcements in April last year.

Kilburg is particularly optimistic about Alphabet’s growth momentum, noting that the company’s revenue has surpassed $400 billion for the first time. He also highlighted the efficiency improvements of Google’s Gemini platform, which currently processes 10 billion tokens per minute, with service costs decreasing by 78% within a year.

Despite Ives calling it the “software apocalypse” and a large-scale sell-off across the industry, both analysts see opportunities amid the carnage.

Ives described the current moment as a “table-pounding” opportunity to buy oversold stocks like Seagate, CrowdStrike, Microsoft, Oracle, and ServiceNow. He said, “We will look back at this as an excellent time to buy stocks that I believe have been heavily sold off.”

The analysts also discussed volatility in the cryptocurrency market. Kilburg compared MicroStrategy to “a falling knife,” as the stock has fallen 72% from its all-time high. Kilburg stated, “Cryptocurrencies are generally going through a testing period,” and pointed out that during tough times, cryptocurrencies “become overly indifferent and do not align with the overall global macro sentiment.”

However, despite the turbulence in the tech and crypto markets, both analysts remain long-term optimistic. Ives described the sell-off as a “digestive phase,” rather than a fundamental shift. He emphasized, “This is not the end,” and the current indiscriminate sell-off presents significant opportunities for investors willing to endure market fluctuations.

Meanwhile, a team led by Goldman Sachs analyst Alexander Blostein stated earlier this week that concerns about AI risks to the software industry persist, putting pressure on alternative asset management firms and direct lending institutions.

Over the past month, VanEck Alternative Asset Management ETF (GPZ) has fallen 14%, while the S&P 500 index has only declined 0.8%. At the same time, VanEck BDC Income ETF (BIZD) has dropped 7.8% over the past month.

In a client report, Blostein and colleagues wrote, “The sharp sell-off in alternative asset management companies is mainly due to investor concerns about the group’s software exposure in private equity and private credit businesses, and the potential growth impact if investment performance deteriorates.”

Despite limited data, especially in private equity investments, Goldman Sachs’s preliminary assessment indicates that alternative asset management firms have “relatively small” software exposure at the corporate level, with private equity software accounting for about 5% of total management fees. They also noted that the software management fees from private credit/direct lending are similarly proportioned.

Of course, there are differences among companies. TPG and KKR have relatively higher proportions in private equity, with management fees in the software sector reaching single-digit percentages. Blue Owl and Ares Management have higher proportions in private credit, accounting for 13% and 8% of management fees, respectively.

Goldman Sachs analysts estimate that The Carlyle Group, Apollo Global Management, and Brookfield Asset Management have the smallest risk exposure to software investments.