Good morning, investors. While the conflict in Iran and oil markets have drawn the most headlines this week, beat-down software stocks continue to trade at depressed valuations.

The sell-off was top of mind for investors and financial advisors at Future Proof in Miami this week.

Software stocks have turned far more negative than the broader market and history suggests this type of divergence doesn’t last long.

While the S&P 500 remains within 3% of its record high, the software sector has declined roughly 25%, one of the widest drawdown gaps between the two in decades.

The group has typically moved in lockstep with the benchmark index across bull and bear markets, which makes the magnitude of the current disconnect stand out.

On Tuesday, Wedbush analyst Dan Ives told the audience at Future Proof that the ongoing software weakness is the “most disconnected trade” he’s seen in 15 to 20 years.

Concerns about AI disrupting legacy firms, Ives said, have been overblown.

Geopolitics aside, bearish investors have steered the market to start the year. Fears that generative AI could make traditional software companies obsolete or compress pricing power has led to aggressive selling in the sector.

The recent price action has resembled something like an “AI ghost trade,” Ives said, though long-standing players like Salesforce and ServiceNow will eventually recover.

The data, install bases, and distribution of the largest names in the business will remain valuable in an AI-dominated world, in his view.

As the chart above illustrates, investors are acting as if software is experiencing a structural collapse, and yet corporate spending on AI infrastructure and applications continues to break records.

Sentiment, Ives said, is flashing a contrarian signal.

“Right now the Miami cab driver is bearish in software” Ives said. “And I think that’s a bullish sign relative to where I see software this year.”

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🚀 Oracle smashed earnings and the stock jumped 9%. The company beat estimates with cloud revenue climbing 44%. Remaining performance obligations more than quadrupled to $553 billion from a year earlier. (CNBC)

🛢 The IEA proposed the largest release of oil reserves in history. Officials will decide as soon as Wednesday on next steps, and the move would exceed the 182 million barrels of oil that member countries released in 2022. (WSJ)

📈 Saudi Arabia is ramping up alternative oil pipelines. The Kingdom is nearing full use of its East-West pipeline to bypass the Strait of Hormuz. This could ease the bottleneck that has driven crude prices higher. (Barron’s)

I sat down with Anthony Pompliano to discuss bitcoin’s sideways trading, the slowing labor market, geopolitical risks, the Fed’s policy errors and how to leverage AI for the new era.

Tune in on YouTube, Spotify, or Apple Podcasts.

🗓 March 11, 2021: President Biden signed the $1.9 trillion American Rescue Plan into law, leading to $1,400 stimulus checks sent to millions of Americans and the highest inflation in four decades.

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