Don’t Fall for Cheap Software Stocks, 3 Picks-and-Shovels Plays to Buy

Over a decade ago, a group of mall-based retail stocks were beaten down to single-digit P/E ratios by the impact of Amazon, and bargain hunters rushed in. In the end, most did not stage a recovery; they grinded slowly through a long decline. Today, the same script is playing out in the software industry in 2026. Some software stocks with enticingly low P/E ratios may not be gold mines, but rather the flip side of a value trap.

Traditional SaaS is being “absorbed” by AI

In the past, enterprise workflows relied on dedicated SaaS applications like ServiceNow, Salesforce, and Adobe. Today, AI platforms such as Claude, ChatGPT, and Gemini are directly “embedding” these functionalities. Once-untouchable enterprise software giants like ServiceNow (NOW), after being battered in the spring AI-driven sell-off and then rebounding, are not seeing a recovery. AI-native platforms will absorb 80% to 90% of what NOW does. The remaining portion will face severe pricing pressure, leading to a triple contraction in revenue, margins, and profits, leaving the multiple with nowhere good to go.

Investors eyeing single-digit P/E ratios and preparing to bottom-fish are falling into the same trap as retail stocks a decade ago – a low price alone is not a reason to buy; structural disruption is the real killer.

The real opportunity lies on the “picks-and-shovels” side

The true beneficiaries of the AI boom are not the disrupted traditional software vendors, but the companies providing the “picks and shovels” for AI infrastructure. Three stocks are worth watching:

1. Lumen Technologies (LUMN)– On the surface, an old telecom company, but in practice, it is becoming a fiber backbone for AI infrastructure. The company has signed roughly $13billion in hyperscaler contracts (includingMicrosoft) and is laying down a major new data center connectivity pipeline in the Northwest region. The historical headwind has been a heavy debt load, but the company is paying down debt and pushing maturities out to 2029, buying time for revenue growth from those new contracts to materialize. Technically, the stock just put in a clean bounce off its 200−day moving average, with a forecast that it could break above $12 and move meaningfully higher.
2. CoreWeave (CRWV)– This is a larger and more aggressive bet on the same trend. AI compute capacity will remain structurally undersupplied for years, and CoreWeave is the most levered name in the category. The company was a beneficiary of OpenAI, and with the recent strong return of ChatGPT 5.5 and the IPO calendar coming into focus, it has regained momentum. While riskier than most AI infrastructure plays, it also has more torque.
3. Redwire (RDW)– Redwire specializes in outer-space solar panels (the ROSA solar arrays that power the International Space Station). When SpaceX raises the $75billion it expects from its IPO and routes a meaningful chunk of that into orbital computing, data centers in space will need outer-space solar. Outer space solar means Redwire. With the SpaceX IPO catalyst approaching, the stock is expected to reach over $50 in the next 6 to 12 months.

Avoidance guide and conclusion

By contrast, ServiceNow (NOW) sits on the disrupted side. Even with insider buying (including by Donald Trump), that does not change the structural logic. POET Technologies (POET) remains in the concept stage, has not yet landed hyperscaler orders, is highly volatile, and lacks a fundamental anchor.

For investors, the core task in the second half of 2026 is to distinguish between “cheap” and “trap.” There will be clear winners and losers in the AI boom. LUMN, CRWV, and RDW stand on the infrastructure-beneficiary side, while traditional software stocks with single-digit P/E ratios may be the most dangerous bargains.

AI Technology U.S. stocks Value Stocks