Software Selloff Is a Chance to Increase Exposure: Lombard Odier
Speakers
Summary
- The recent selloff in software stocks is viewed as a buying opportunity, driven by the thesis that AI is an efficiency enabler (shortening coding time, improving workflows) rather than a disruptor of existing SaaS business models.
- Global growth outlooks for 2026 have been upgraded, prompting a shift toward cyclical sectors like Materials and Metals.
- Japan is highlighted as a standout region with positive earnings surprises and political clarity, contrasting with a "mixed bag" in Europe where analysts are downgrading profit estimates.
Trade Ideas
The speaker notes a "real shakeout" in software last week but regards it as an "opportunity for investors to take exposure." Contrary to fears that AI will disrupt software companies, the speaker argues AI "empowers them" by shortening coding times and enabling workflow efficiencies. Therefore, the dip is a chance to buy premium assets at better prices, specifically targeting cloud infrastructure and cyber defense subsectors. LONG. Continued market perception of AI as a disruptor rather than an enabler; higher valuations compared to the broader IT sector.
Lombard Odier has "upgraded our outlook for 2026 in terms of global growth." Better global growth explicitly "bodes well" for cyclical sectors. The speaker states "materials is one sector that we really like" and notes that "metals are playing a very important role" in this environment. LONG. Global growth failing to materialize; commodity price volatility.
The speaker notes that in Europe, "more analysts have downgraded rather than upgraded profit estimates" and the region depends heavily on just a few sectors like financials. Because the region is a "mixed bag" and lacks the broad growth drivers seen in the US or the political clarity seen in Japan, they maintain a neutral stance. NEUTRAL. Further deterioration in European industrial or financial data could turn this view negative.
The speaker identifies a "broadening of the earnings trend" beyond just tech. Alongside materials, the speaker explicitly names "healthcare" as a sector they like "for different reasons," implying it benefits from the current market rotation and broadening rally. LONG. Regulatory changes or specific earnings misses in major pharma/biotech names.
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