Chaos has engulfed the software industry. Shares in the industry are falling due to the seemingly rapidly emerging threats from AI such as OpenAI and Anthropic, enabling businesses to easily replicate existing solutions. It hasn’t surfaced in finance yet, but fear of disruption has Wall Street scrambling to get out and ask questions later.
Slow down. Take a breath. These stocks won’t be out of money tomorrow thanks to a new chatbot feature. Once this AI hype fades across the market, high-end software stocks will start to perform again. Here are two cheap software stocks you can buy for your portfolio right now, before they do.
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Wix.com (NASDAQ: WIX) down more than 80% from the high. Investors believe that the website building industry will be disrupted by artificial intelligence (AI) because it is very easy to use AI tools to build websites from scratch.
This argument does not seem strong to me for several reasons. First, Wix is one of the AI website building tools that has been a leader in this space for years, thanks to its productivity structure and fast-paced approach. There may be more competition in the future than before, but that doesn’t mean Wix is destined to fail. It’s already built a chatbot-style design tool and found an AI mobile app builder called Base44 that’s growing like wildfire, going from $0 in revenue to $100 million in annual revenue (ARR) in less than a year.
Financially, Wix doesn’t seem to be hurt by AI, at least not yet. Revenue grew 14% year-over-year in the last quarter, while free cash flow remains healthy. Management took advantage of the cheap share price to buy back stock, offloading nearly a third of their outstanding shares in the Dutch tender offer. Wix traded at just 6x free cash flow, which should make this purchase very attractive, even if it’s at a much higher price than it is today.
Unless you think Wix will go out of business this year, the stock looks like a good buy for your portfolio today.
A business that’s out of the headlines when it comes to the AI race, but still in dire straits, Autodesk (NASDAQ: ADSK). Autodesk is a leading software company that sells software for engineers and construction professionals to design and evaluate projects in the virtual world.
Like website design, investors fear that AI will disrupt Autodesk’s products. However, these software programs are more complex than they appear. They use real physics simulations, integrate directly with building codes, and layer on communication and file transfer across different parts of the building supply chain. In addition, Autodesk has been investing in AI simulation and design methods for years. This should help it build tools that are more valuable to customers, providing pricing power when selling to engineers, architects, and construction companies.
The financial pain is not yet apparent to Autodesk. This AI risk is only in the story. Revenue grew 18% last year to $7.2 billion, with expectations of $8.1 billion or more in revenue this fiscal year and operating margin expansion.
Currently, Autodesk stock is trading at 18x its trailing free float. While not as expensive as Wix, it should be a strong performer for your portfolio going forward. The business has grown its revenue by 200% cumulatively over the past 10 years, with no signs of slowing down. All proceeds can be used to repurchase stock. Investors who buy Autodesk today and hold on for the long haul won’t be disappointed when they look back 10 years from now.
Before buying stock in Autodesk, consider the following:
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Autodesk and Wix.com. The Motley Fool has a policy of disclosure.
The Big Round Is Coming: 2 AI-Based “Lost” Stocks To Be Posted Today was first published by The Motley Fool.
