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Goldman Sachs (NYSE:GS) has a pretty interesting strategy for investors who aren’t yet comfortable braving the dip in some of the hardest-hit stocks, specifically in tech. Undoubtedly, Anthropic applied pressure once again to the software stocks, going to show that the SaaS-pocalypse is still on despite the relief gains that have now been given back to the market.
While Goldman Sachs shone a bright light on the trade many weeks ago, I still think that it’s more relevant than ever, especially after the renewed investor anxiety following the release of Anthropic’s Mythos model.
It’s reportedly too powerful (and maybe a bit dangerous) to release to the public, and it’s caused an absolutely vicious sell-off in the cybersecurity names and across the broader software space. Even the heavyweight champs haven’t been spared from the latest round of AI-induced selling.
As the seat-based software business model comes into question, while some pivoting SaaS companies opt to cannibalize their high-margin businesses with AI agents that may not even be able to hold up against competing AI-native products, Goldman’s trade, which suggests investing in Hard Assets, Low Obsolesence (HALO) continues to be the dominant trade for investors who aren’t quite sure as to the magnitude of disruption that AI will continue to bring on.
The HALO trade seems perfect as the SaaS-pocalypse worsens
It feels like some SaaS players might be headed to zero in a hurry, even though that’s quite realistic. Either way, I buy that AI disruption on SaaS stocks could have the potential to get far worse. Even if SaaS firms keep on buying back their own stock, I think it’ll be hard to beckon in the investors who threw in the towel over fears that software is on its way out.
Of course, many of the disruptive AI fears have surrounded Anthropic’s latest tools and models. But let’s not forget that it’s not the only frontier model firm out there that could cause more of a shock to the system. OpenAI and Alphabet (NASDAQ:GOOG | GOOG Price Prediction) stand out as disruptors that can compete and perhaps could cause a race to the bottom for the SaaS names currently under pressure.
Personally, I don’t care how much cheaper shares of fallen SaaS plays get; it’s too hard to catch a bottom in the names as fundamentals fade and economic moats erode. In short, it’s too complicated to know if there’s real, deep value to be had in the names that are now down over 50% or if the pain won’t stop until that peak-to-trough drop is in excess of 80%.
In any case, Goldman’s HALO trade might be more than a trade. It might be the new way to invest in an era of disruptive AI and agents that are starting to become scary good. Can Anthropic and OpenAI really gobble up much of the industry’s lunch? I have no idea, but it certainly feels that way in the heat of this latest leg lower in SaaS.
Microsoft stock might be the ultimate HALO kind of stock
So, what’s the heavy asset, low obsolescence plays to get behind at a time like this? In my view, Microsoft (NASDAQ:MSFT) is a profound AI disruptor that seems to be falling in sympathy with software. Not every software play is created equally.
And in the case of Microsoft, I do think that it’s hungry to cannibalize its own enterprise software as it makes an aggressive push to become more AI-native. Oh, and let’s not forget about Azure, which is being held back a bit by capacity constraints. As the firm moves past them, my bet is that Azure could really start to impress. In terms of hard assets, its data center advantage is a massive moat in this AI revolution.
At 23.3 times trailing price-to-earnings (P/E), I think Microsoft stock might be the HALO value trade to keep tabs on while the SaaS-pocalypse starts becoming less indiscriminate.
