AI Panic Grips Software Stocks: 2 Stocks You Should Buy Anyway

Core Insights - The software industry is experiencing a significant downturn due to fears that advancements in artificial intelligence (AI) will disrupt traditional business models, leading to a market value loss of over $1 trillion in early February [1] - Despite the panic selling, companies like Cloudflare and Microsoft are identified as strong buying opportunities, as they are positioned to benefit from AI rather than be harmed by it [1] Group 1: Cloudflare (NET) - Cloudflare's stock has fallen 26% from November highs, influenced by a network outage and concerns over customer retention [1] - The company forecasts 2026 sales between $2.79 billion and $2.80 billion, exceeding analyst estimates of $2.74 billion, driven by AI demand [1] - Cloudflare's role in supporting AI workloads positions it as a "Tier 1 AI winner," with strategic partnerships and high switching costs enhancing its competitive edge [1] Group 2: Microsoft (MSFT) - Microsoft shares are down 18% year-to-date, with a 12% drop following its fiscal Q2 earnings report due to rising capital expenditures for AI infrastructure [1] - The company reported Q2 revenue of $81.3 billion, with Azure cloud growth stable at 37% to 38%, despite facing capacity constraints from AI chip shortages [1] - Microsoft's heavy reliance on OpenAI, which accounts for 45% of its remaining performance obligations, raises concerns about over-dependence, but its fundamentals support long-term growth in the AI era [1]