Intuit, Adobe, Zscaler, Workday Plunge Amid SaaSpocalypse Fears: Buy The Dip?

Top software stocks have declined this year amid growing fears of a “SaaSpocalypse” in the US and other markets.

Intuit, Zscaler, Adobe, and Workday are Top Laggards This Year

Intuit (NASDAQ:INTU), the creator of QuickBooks and TurboTax, is the worst-performing company in the two indices this year after falling by 58%. It has dropped by 61% in the last 12 months.

Adobe (NASDAQ:ADBE), Zscaler (NASDAQ:ZS), and Workday (NASDAQ:WDAY) have slipped by 42%, 43%, and 39%, respectively this year. Some of the other worst-performing software companies are The Trade Desk, Salesforce, ServiceNow, and Autodesk.

The main reason behind the sell-off is the ongoing SaaSpocalypse fears. Investors simply believe that some of these companies will be disrupted by artificial intelligence tools made by firms like Anthropic and OpenAI. Also, some sector-specific AI companies like Harvey AI, Legora, and Basis are expected to disrupt these firms.

Most of these companies have defended their business models, pointing to their internal AI initiatives that improve their existing products. For example, Intuit has introduced QuickBooks AI, which embeds AI features on key areas like bookkeeping, payroll, and payments. 

Similarly, Thomson Reuters has launched CoCounsel, a product that embeds generative AI into legal research and drafting. Salesforce, on the other hand, launched Agentforce, which infuses AI agents in companies. 

The companies have also pointed to the fact that their businesses were benefiting from AI, which is helping them slash costs and improve their margins. 

Most notably, they also note that their customer churn remains limited, with many enterprise customers continuing to spend. For example, Adobe stock retreated last week even after it released strong numbers, with its revenue rising by 13% to $6.62 billion. Intuit's revenue rose by 10% to $8.6 billion, while Zscaler jumped by 25% to $850 million.

Most Software Stocks Have Become Bargains

The ongoing retreat of most software stocks is mostly because of the valuation reset. That's because, before the ongoing SaaSpocalypse fears, these companies used to trade at extremely premium valuations. 

Today, these firms have become some of the cheapest names in Wall Street. Adobe trades at a forward price-to-earnings ratio of 8.3, lower than the five-year average of 25. 

Intuit has a forward P/E ratio of 11.6, lower than the five-year average of 34, while Zscaler has a multiple of 31. Other software companies have seen their multiples retreat. For example, Salesforce, ServiceNow, and Workday have forward PE ratios of 11, 24, and 12, respectively.

These cheap multiples don't make the companies’ outright buys for now, as the SaaSpocalypse concerns remain. However, analysts remain largely optimistic about some of them. For example, the average estimate for Salesforce is $264, up from the current $164. 

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