Buying the Bloat: Why the Most Hated Stocks in Tech Are About to Rip
Buying the Bloat: Why the Most Hated Stocks in Tech Are About to RipThe philosophy of cost compression — and a new screen for the best trades of 2026
There is a trade hiding in plain sight right now, and almost nobody is talking about it correctly. Wall Street has spent the last three months terrified of enterprise software. The iShares software ETF is down over 21% year-to-date. Traders started calling it the “SaaSpocalypse” — a term coined at Jefferies to describe a selloff that has erased an estimated $2 trillion in software market capitalization. The narrative is everywhere: AI agents will kill SaaS, per-seat licensing is dead, these companies are structurally impaired. I think the narrative is half-right — and that getting the other half right is how you make serious money over the next 18 months. Here is the thesis in one paragraph: The market is correctly identifying that these companies are too fat. It is incorrectly concluding that they are therefore worthless. The real trade is that AI doesn’t just threaten these companies — it also hands them the precise tool they need to fix their single biggest problem. And when they fix it, the stocks will do what over-cost, over-hated companies always do at generational lows: they rip. The Philosophy: Buying Cost, Not RevenueThere are two ways to make a stock go up. You can grow the top line, or you can shrink the cost line. Wall Street spends 95% of its time focused on revenue growth. That’s why it consistently misses the other opportunity — the one that’s actually more reliable, more predictable, and more binary in its outcome. When a company’s cost structure is wildly out of step with its revenue base, you are sitting on a coiled spring. The costs are observable today. The savings math is not complicated. The only variable is whether and when management pulls the trigger. And when they do, the savings flow directly and immediately to free cash flow — not through the revenue line with all its uncertainty and lag, but straight to the bottom line, the next quarter. Think about what that means in practice. A company that cuts $1 billion in annual operating costs doesn’t need to sell a single additional dollar of product. Every dollar of savings is essentially a dollar of new earnings. At a 20x earnings multiple — modest for a growing software company — a billion dollars in cost cuts is worth $20 billion in market cap. That math is why stocks can surge 20–30% in a single day when a major restructuring is announced. The market is not reacting to news. It is repricing a certainty that was always there, hidden inside the cost structure, waiting to be unlocked. This is not a new trade. It is one of the oldest trades in value investing. Buy companies that are priced as if their current bloated cost structure is permanent. Wait for the inevitable moment when reality asserts itself and management acts. Collect the re-rating. What is new is the scale of the opportunity. Because AI has simultaneously done two things: it has created the narrative that justifies the cuts to a skeptical board and public, and it has created the actual tools to execute those cuts faster and more deeply than any prior restructuring wave. The combination of cover and capability is rare. When it shows up, you pay attention. The Setup: Multi-Year Lows Across the BoardTo understand the opportunity, you need to understand how extreme the current dislocation is. We are not talking about stocks that are down 10 or 15 percent from recent peaks. We are talking about category-dominant businesses that have been cut in half — or worse — from highs reached just 12 to 24 months ago. Many high-profile software names have hit multi-year lows in 2026.Software price-to-sales ratios have compressed from 9x to 6x — levels not seen since the mid-2010s. ServiceNow, one of the most admired enterprise software franchises ever built, was trading at over $211 a share in July 2025. Today it sits near $103. That is a 51% drawdown on a business that just beat earnings for the ninth consecutive quarter. Workday has fallen from an all-time high of $307to around $127 — a nearly 59% decline from peak. Intuit, which runs TurboTax and QuickBooks — products that are category monopolies with decades of pricing power — has fallen from a 52-week high of $813 to under $430, a collapse of nearly 50%. These are not speculative companies. These are businesses with billions in recurring revenue, deeply embedded customer relationships, and operating models that have survived multiple economic cycles. They are being repriced as if they face existential destruction. J.P. Morgan’s research describes the market’s logic as a fundamental contradiction: investors are holding two mutually exclusive fears simultaneously. On one hand, they fear AI will disrupt and replace enterprise software. On the other, they fear hyperscalers are spending too much on AI infrastructure and won’t generate expected returns. Both fears cannot be simultaneously true. If AI companies are going to obliterate software companies, those AI infrastructure stocks should be more valuable — not less. Bank of America called the resulting selloff “internally inconsistent,” likening it to the DeepSeek panic of January 2025 — which proved a buying opportunity within weeks. The market is selling indiscriminately. That is exactly the environment where disciplined, specific stock selection generates the highest returns. The Screen: Revenue Per EmployeeThe standard way to identify cost opportunity in these companies is to look at SG&A as a percentage of revenue. That works. But there is a sharper lens that gets closer to the actual mechanism of what is about to happen. I call it the Revenue Per Employee Trap. In knowledge-work software companies, a large portion of headcount is concentrated in go-to-market, customer success, implementation, and support — functions that generate revenue indirectly by helping customers adopt and expand their use of the product. For two decades, this was simply the cost of doing business. You needed humans to sell, onboard, train, and retain enterprise clients. There was no alternative. AI has created an alternative. Not a partial one — a near-total one for the most repetitive, process-driven elements of these roles. Customer success managers doing quarterly business reviews from templates. Support agents triaging tier-one tickets. Implementation specialists running standardized onboarding workflows. Sales development reps qualifying inbound leads. These are not creative, judgment-intensive jobs. They are pattern-matching jobs. And pattern-matching is precisely what large language models do at a fraction of the cost. The proof of concept is already in the public record. Salesforce cut around 4,000 customer support roles after deploying AI systems that handle a growing share of service requests, with CEO Marc Benioff stating that AI agents now handle approximately half of all customer interactions. This is not a projection. It is a reported fact from a Q4 2025 earnings disclosure. The technology works. The savings are real. The playbook is written. The screen below applies three filters simultaneously: revenue per employee (a proxy for labor intensity of the business model), stock drawdown from the 52-week high (a proxy for board pressure to act), and an AI role-replacement index (an estimate of what share of the workforce sits in automatable functions). The companies that score highest on all three are the ones where the coiled spring is tightest. How to read the screen: Revenue/Employee tells you how efficiently headcount translates to revenue. A high number in a services-heavy business model (like Intuit’s human tax experts) signals bloat in revenue-generating roles — not lean operations. Drawdown tells you how much board pressure exists to act. AI Replacement Index estimates the share of current roles that AI agents can realistically absorb within 18 months. The composite score weights all three equally and is meant to flag urgency, not investment quality. The Four Highest-Conviction NamesServiceNow (NOW)ServiceNow is the name that gets the least attention in this context, which is exactly why it is the most interesting. The company has built what is arguably the best enterprise workflow platform in the world. Its Now Platform is deeply embedded in how large organizations manage IT operations, HR processes, and customer service workflows. Switching costs are extraordinarily high. Revenue retention is exceptional. The business grew revenue 21% year-over-year in fiscal 2025 to $13.3 billion, and just beat earnings for the ninth consecutive quarter. By every fundamental measure, this is a business in excellent health. And yet the stock has been cut in half. The 52-week high was $211.48. It now trades near $103. ServiceNow is on track for its largest quarterly decline on record. The reason is fear — fear that AI will erode the value of the workflows ServiceNow manages, and by extension, the software that manages them. Here is the irony: ServiceNow’s own platform is precisely the technology that enterprises use to automate the workflows that AI is now targeting. The company is not a victim of disruption. It is a potential beneficiary — provided it adapts its cost structure to the new reality. The numbers make the opportunity clear. ServiceNow had 29,187 employees as of December 31, 2025. Sales and marketing expenses alone ran at $4.39 billion in fiscal 2025, with G&A adding another $1.12 billion — a combined SG&A load of over $5.5 billion against $13.3 billion in revenue, a ratio of 41%. The company was aggressively hiring even as the market was collapsing around it; sales and marketing headcount costs alone rose $534 million in fiscal 2025. That hiring binge, combined with a stock that has since been cut in half, is exactly the setup that forces a reset. A 25% workforce reduction — roughly 7,300 positions — at an estimated fully-loaded cost of $200,000 per employee would generate approximately $1.46 billion in annual savings. Against $13.3 billion in revenue, that pushes operating margins from the mid-20s toward 36% or better. At a 15x revenue multiple — well below historical norms for this business — that margin expansion alone implies a stock price significantly above today’s levels. ServiceNow’s next earnings call is scheduled for April 22nd. Watch closely. Workday (WDAY)Workday’s situation is perhaps the most straightforward on this list, and the most urgent. The all-time high Workday stock price was $307.21, reached in February 2024. Today the stock trades around $127. That is a nearly 59% decline in just over two years, on a business that has continued to grow revenue at a double-digit pace throughout that entire period — $9.55 billion in fiscal 2026, up 13% year-over-year. The market has essentially decided that every dollar of Workday’s future earnings is worth roughly half what it thought two years ago. That is an extraordinary repricing of a mission-critical business. The co-founder has returned as CEO. This is almost always a watershed moment. When Howard Schultz returned to Starbucks, when Steve Jobs returned to Apple, when Bob Iger returned to Disney, each brought a founder’s clarity and willingness to make bold bets that a hired executive simply cannot. A returning founder is not afraid of the company’s history, and is not politically beholden to the people who built the current structure. Workday has already begun cutting. Combined with the February 2025 round that eliminated 1,750 positions, the company has now cut more than 2,100 jobs in just over 12 months. But 2,100 jobs out of 21,000 employees is incremental. The setup calls for something far more decisive — a single, clean, comprehensive restructuring that resets the cost base in one move and allows the company to grow into a leaner operating model. That is what the market is waiting to reward. A 30% workforce reduction at a fully-loaded cost of $210,000 per head would generate roughly $1.3 billion in annual savings. At a 25x free cash flow multiple — conservative for a growing, mission-critical enterprise software business — that incremental cash flow represents over $30 billion in market cap, against a current market cap of approximately $35 billion. The stock could nearly double on cost action alone, before giving any credit to continued revenue growth. Autodesk (ADSK)Autodesk is the underappreciated name on this list. It doesn’t generate the same headlines as Workday or ServiceNow, but the setup is arguably cleaner. Autodesk’s fiscal 2026 revenue came in at $7.21 billion, up 17.5% year-over-year. The business is accelerating. The products — AutoCAD, Revit, Fusion 360 — are the professional standards for architects, engineers, and manufacturers worldwide. There is no viable substitute. The competitive moat is as deep as it gets in software. And yet the company has now executed two separate rounds of major layoffs in the span of 12 months: a 9% reduction (approximately 1,350 employees) announced in February 2025, followed by another 7% reduction (approximately 1,000 roles) in January 2026, concentrated in customer-facing sales teams. Starting from a base of 15,300 employees entering fiscal 2025, Autodesk has now cut roughly 2,350 positions — and the stock is still down 28% from its 52-week high despite strong revenue growth. That is the tell. When a company with accelerating revenue and dominant market position cuts its sales force not once but twice in a year, it is not doing so because business is weak. It is doing so because AI is making those headcount levels unnecessary, and management has figured out that the math of cutting is better than the math of holding. The question is whether 16% cumulative cuts are the end of the story, or the beginning. Given the SG&A load and the continued stock underperformance, the pressure to go further is acute. Intuit (INTU)Intuit is the most counterintuitive pick on this list, and counterintuitive is usually where the money is. The surface read on Intuit is that it is a quality compounder. TurboTax and QuickBooks are dominant, sticky products, and the company grew total revenue 16% to $18.8 billion in fiscal 2025, with GAAP operating income up 36%. That read is correct. What the market is also correctly identifying — but perhaps incorrectly pricing — is that Intuit built an enormous human labor infrastructure as a competitive moat. When the software alone wasn’t enough to justify premium pricing, Intuit wrapped it in humans: human tax experts through TurboTax Live, human bookkeepers through QuickBooks Live, armies of customer success agents managing small business relationships. AI has now eliminated the strategic necessity of that wrapping. When Intuit’s own product can provide real-time, accurate, personalized guidance inside the interface, the army of human experts sitting behind it becomes an expensive legacy rather than a moat. The stock reflects this fear, having fallen nearly 47% from its 52-week high of $813.70 to under $430. That is a brutal drawdown on a business that still throws off extraordinary cash flows. The numbers are stark. Intuit’s annual SG&A expenses were $6.6 billion in fiscal 2025 — against $18.8 billion in revenue, a ratio of 35%. For a company selling software products this mature and this dominant, that SG&A ratio is a function of the human service layer, not the product itself. Compressing it toward 25–28%, in line with a more efficiently run software business, would represent over $1 billion in annual savings and a meaningful re-rating of a stock that already trades at multi-year lows. Intuit has 18,200 employees. At fully-loaded costs of $180,000 per head, a 20% reduction unlocks approximately $655 million annually — before any benefit from the higher-margin AI-native service model that replaces the human one. The Risk You Need to UnderstandThis is not a risk-free trade. No trade is. There are three things that can go wrong, and you should think about all of them before sizing a position. The first is that management doesn’t act, or acts too slowly. The pressure is intense, but board cultures vary, and some CEOs will choose incremental cuts over decisive restructuring. The companies that nibble — doing repeated 2–3% reductions over 18 months rather than one clean reset — will not get the stock market reaction they need. Repeated rounds of small cuts destroy morale without delivering the financial clarity that investors are looking for. The second is that cuts go too deep into revenue-generating functions. Cutting 30% of your customer success team sounds like a cost win until your net revenue retention rate drops five points a year later. The real structural threat to these businesses is not that AI kills their products overnight — it is that AI is eating their customers’ budgets, with every dollar redirected to AI infrastructure being a dollar not spent on another software seat. Management teams have to thread the needle between cutting enough to satisfy investors and cutting so much that they damage the customer relationships that make the business worth owning. The third is that sentiment gets worse before it gets better. Short interest in mid- and large-cap software has surged over the past three months, with cybersecurity and SaaS companies seeing the biggest spike in bearish bets. A crowded short can stay crowded for a long time. These stocks can go lower before they go higher. But here is the thing about that last risk: the more short interest piles in, the more violent the reversal when the catalyst arrives. A restructuring announcement at a heavily shorted company doesn’t just go up. It explodes. The short squeeze amplifies the fundamental re-rating. That dynamic is not a coincidence — it is a feature of this trade. The Bottom LineThe SaaSpocalypse has created one of the most unusual setups in enterprise software investing in a generation. Companies with dominant products, deep competitive moats, and accelerating revenue are trading at multi-year lows because the market has decided their cost structures are permanent liabilities rather than fixable problems. They are not permanent. They are fixable. The tools to fix them have never been more available. The board pressure to fix them has never been more intense. And the market reward for fixing them has never been more clearly telegraphed. Prices have gotten so low that even longtime SaaS bears are now seeing buying opportunities. JP Morgan strategists have stated that the market is pricing in worst-case AI disruption scenarios that are unlikely to materialize, while Morgan Stanley’s software research chief has described the selloff as a sentiment-driven dislocation not justified by the underlying fundamentals. The companies on this screen — ServiceNow, Workday, Autodesk, and Intuit at the top of the list — are not broken businesses. They are businesses with fixable cost structures, beaten-down stock prices, and enormous leverage to a single, highly predictable event: the moment their management teams decide that the math of cutting is better than the math of waiting. That moment is coming. Buy before it arrives. You're currently a free subscriber to Cheap Software Stocks. For the full experience, upgrade your subscription.
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