Software stocks have always been expensive, up until a few months ago. Stocks like Procore Technologies (NYSE:PCOR | PCOR Price Prediction), dLocal (NASDAQ:DLO), and Intuit (NASDAQ:INTU) have plunged significantly, and they’re not the only ones that have done so. Wall Street now believes AI will make the software-as-a-service (SaaS) business model much less profitable. And considering AI models now can easily make some basic software with prompting and no coding knowledge, it’s easy to see why.
For example, a business like Adobe (NASDAQ:ADBE) was well-coveted. It built software that it could then sell to users ad infinitum on a monthly basis for low upkeep. Wall Street loves recurring revenue and also loves high margins, so investors paid a premium for it.
Today, you don’t really need Photoshop. Almost all casual photo editing can be done by just asking AI.
Not all software stocks have an underlying business like Adobe, though. It’s a mistake to think of all SaaS stocks as the same. AI can replace some basic software, but the following three companies have software that can’t be replaced with prompts:
Procore Technologies (PCOR)
Procore Technologies makes software for the construction industry, and construction management isn’t something AI is ever going to entirely replace. AI can definitely help with the tidbits, but it cannot replicate a platform that integrates everything a construction company needs to function, which Procore sells. On top of that, the construction industry can’t trade some reliability for big-time cost savings. Procore has audit trails, compliance, and no AI is reliable enough to handle that.
PCOR stock has been relatively spared compared to most other software stocks because of this. It is “only” down some 26% below its highs, but I think that’s a serious discount for a company with bright prospects.
Analysts expect nearly 30% annual EPS growth in the latter half of this decade. I will admit that the revenue growth is expected to slow down a little to 13.4% annually, but the earnings growth still makes it worth it.
Procore is also sitting on a $768 million pile of cash with just $72 million of debt. This company has historically focused on customer acquisition, but it is pivoting quickly.
I see the stock more than doubling above $100 sometime in 2027. Analysts have a $72 price target in the next 12 months, with the highest target at $95.
DLocal (DLO)
DLocal is a payments company that AI is not going to replace anytime soon because of what it does. The business makes it easier for developing countries to pay global businesses. That may sound like a trivial thing, but it certainly isn’t once you realize just how much certain countries struggle with international payments.
Lots of countries restrict U.S. dollars from flowing out of the country, and the mishmash of their regulations makes it a nightmare for businesses to support them all. DLocal deals with this by letting a customer pay in their own currency and then paying the global company in their own currency.
The 3-year free cash flow growth rate is in hypergrowth territory at over 40% annually. Analysts expect revenue growth to top nearly 40% this year. You’re paying just over 15 times earnings for it.
This isn’t even the real discount. When you look at cash flow, you’re paying just 11 times FCF for DLO stock. When you strip out the $458 million net cash from the market cap, you’re paying just over 9 times FCF.
Intuit (INTU)
Out of the three stocks in this list, Intuit is probably the most “vulnerable”. Intuit has a popular product you’ve likely heard of, and it’s called TurboTax, alongside other accounting products for businesses.
I do expect some softness on the consumer side, but I think the moat around the business software is underestimated. Accounting is growing fast, and the stack Intuit offers can’t be replaced.
The stock is down nearly 40% from its highs and now trades at less than 15 times forward earnings despite sustained double-digit growth. There has been a slight slowdown, but it does not warrant a selloff of this magnitude, as both sales and earnings are growing just fine.
I don’t expect a full recovery this year, but 50%-plus upside is likely if the broader software sector starts recovering.
Top Gaining Stocks
Top Losing Stocks