As the Run DMC song goes, “It's tricky to rock a rhyme, to rock a rhyme that's right on time.” Investing can be tricky too—especially when markets are moving this fast. This past week was no exception. If you got caught short gamma (aka volatility), simply, by being long silver or gold in an ETF, the trickiness was loud and clear with prices falling last week more than 20% in a day.

Software stocks also declined—though less obvious what went wrong. The explanations relate to AI, most recently the launch of Claudebot, that suggest software is dead and will be replaced. Also, the flames were fanned from concerns of “circularity” between  revenues and investments among hyperscalers. These concerns heightened after Microsoft’s earnings report showed an increase in revenue performance obligations (RPOs) with a decent portion attributed to OpenAI, whom they also have an investment in. While I know AI’s software takeover is a viable possibility in the years to come, either with or in place of existing software, looking through the numbers of certain software companies, there has to be some near-term set of prices that make the sector, or select names in it, look cheap—too cheap. The median stock is down close to -20% in the last 12 months. I did a scan of all software companies out of the largest 1,000 stocks. From a fundamental perspective, they have:

• Higher cash flow margin: roughly 2x those of the broader 1,000 stocks

• Less debt: median 16.7% debt-to-assets compared with 30.5% for the broader stocks

• Higher analyst expected price appreciation: more than 3x the median estimate, though analyst ratings might lag changing market conditions

• Higher short interest: about 0.5% above the broader market median

• Technically, the average RSI is around 24, near commonly understood “oversold” levels. In fact, the median return is down around 20% over the last 12 months compared to up about a median 3% for broader US stocks.

BUT, these software stocks are:

• More expensive on a cash flow basis (price/free cash flow) by 1.75x

• About the same valuation when normalized by growth (PEG ratio)

• Technically, many of these stocks are near resistance levels, where further declines remain a possibility.

Together, this brings me to believe we could be at the bottom. But sometimes it’s not worth being a hero. Watching and being ok with not the exact perfect timing is easier to get behind on a recovery. Because, “It's like that y'all.”