The steep sell-off in Software as a Service (“SaaS”) stocks in the last week creates opportunities and threats for investors. Among the software names, Adobe Systems (ADBE) and Oracle (ORCL) stand out the most. Both firms are victims of the artificial intelligence booms, but in different ways.
Adobe shares fell for five straight trading sessions, a streak not seen since the technology sell-off of 2022. Markets are not convinced that the image and video creative suite supplier may protect its moat. Although the firm enjoyed a robust 46% operating margin on a non-GAAP measure, competition from AI might erode it. China’s Mistral, Qwen from Alibaba (BABA), Gemini AI from Alphabet (GOOG), and OpenAI all offer AI-generated solutions.
ADBE stock closed at $296.12 on January 17, a new 52-week low. Its next support zone is around $275, a price not seen in five years.
Database giant Oracle fell by 3.74% last week. Debt holders who hold $18 billion in bonds are suing Oracle. It named co-founder and current CTO Larry Ellison in the lawsuit. The plaintiff blamed the debt price decline on artificial intelligence.
Oracle raised debt to invest heavily in AI servers. It wants to resell AI hardware, acting as an intermediary supplier. This business model depends on OpenAI staying solvent. More importantly, demand for AI cannot fall for this business plan to work.
Oracle has around $108 billion to $132 billion in total debt. Shares trade at a price-to-earnings ratio of 35.9 times.
