Big Opportunity Ahead in Software - How to Tell Software Stock Winners From Losers, Fed Minutes Ahead

Disruption In Software Creating Opportunities

Please click here for an enlarged chart of software company Atlassian Corp (NASDAQ:TEAM).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of TEAM stock is being used to illustrate the point.
• The chart shows that in 2021, TEAM stock ran as high as $483.13.  The rise was due to the momo crowd buying software stocks at that time like there was no tomorrow.  The momo crowd was excited about corporations hiring more people and more licenses for seats for software companies during the pandemic era.
• The chart shows the momo crowd lost their shirts when the bear market came in 2022.
• The chart shows the momo crowd ran up TEAM stock again in 2024 and early 2025 as the momo crowd was influenced by momo gurus' highly flawed analysis that Atlassian would be a beneficiary of artificial intelligence.
• The chart shows that the momo crowd has lost its shirt again as it has become evident that contrary to momo gurus' prior analysis, TEAM stock is a loser from AI.
• The chart shows TEAM stock has lost 83% from its high.
• In our analysis, a fortune is to be made from disruption in software.  First, investors must learn the characteristics of the winning software stocks and characteristics of the losing software stocks. 
• Here are the structural characteristics of winning software stocks:
  • The main repository of data for the enterprise
  • Private data
  • Focus on large enterprises
  • High consumption so that the switch from a seat based model to a consumption based model is profitable.
  • High outcome value so that the switch from a seat based model to an outcome based model is profitable.
  • Regulatory moat
  • High switching costs
  • Control over mission critical systems
  • Embedded enterprise relationships
  • AI enabled productivity tailwinds
  • Strong balance sheets
• Here are the structural characteristics of losing software stocks:
  • Primarily based on accessing data and presenting it with a GUI or a custom search
  • Focus on workflow
  • No proprietary data
  • Public data
  • No regulatory moat
  • Focus on small and medium size businesses
  • Switching from a seat based model to a consumption based model will result in significant loss of revenues.
  • Switching from a seat based model to an outcome based model will result in significant loss of revenues.
  • Increased commoditization
  • AI driven substitution
  • Customer churn risk
• Durable orders data is stronger than expected
  • Durable orders came in at -1.4% vs -2.6% consensus.
  • Durable orders ex-transportation came at 0.9% vs 0.3% consensus.
• FOMC minutes will be released today at 2pm ET and may be market moving.
• PCE, the Fed's favorite inflation gauge, will be released on Friday at 8:30am ET.
• There is speculation that the Supreme Court may announce its tariff decision on Friday.

Housing Starts

The just released data came stronger than expected.  Here are the details:

• Housing starts came at 1.404M vs. 1.320M consensus.
• Building permits came at 1.448M vs. 1.412M consensus.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), and NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL), Alphabet Inc Class C (NASDAQ:GOOG), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD).  The most popular ETF for silver is iShares Silver Trust (NYSE:SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Gold

The momo crowd is buying gold in the early trade and is especially aggressive in gold ETF (GLD), silver ETF (SLV), VanEck Gold Miners ETF (NYSE:GDX), and Global X Silver Miners ETF (NYSE:SIL).  Smart money is inactive in the early trade.

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals. 

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.