Finding Hidden Standouts in This Beaten-Down Industry

Editor's note: Software stocks are still reeling from AI's latest promises. But that doesn't mean the sector is dead. In this issue, Vic Lederman of our corporate affiliate Chaikin Analytics explains why selectivity is more critical than ever today. As he explains, one approach can help you separate the software stocks that AI will replace... from the ones poised to ride this technology boom higher.

By now, it may seem like the software industry's stumble is old news...

The carnage in the space has been all over the financial media. And we've warned about these stocks more than once recently...

Today, the State Street SPDR S&P Software & Services Fund (XSW) has a "very bearish" ranking from our ratings tool at Chaikin Analytics. And only six stocks in the fund have a "bullish" or better grade... compared with 58 "bearish" or worse holdings and 74 holdings in "neutral" territory.

But not every company in the space looks bad. In fact, there are some higher-quality stocks hiding among this group.

This helps show the importance of being selective – particularly in this type of market environment.

And after this sell-off, investors have a great opportunity to profit from these "diamonds in the rough"...

The Power Gauge Says This Software Stock Is Unique

Right now, Zoom Communications (ZM) is a standout in the software industry...

The company needs little introduction. It's a household name with videoconferencing.

And even as XSW has shed about 14% of its value over the past month, Zoom's stock has jumped 12%.

Zoom was trading around $81 on January 21. Barely a week later, shares spiked to more than $96.

This growth was far from random. With the help of the Power Gauge, we can see what drove the rally...

We use the Power Gauge at Chaikin Analytics to analyze the markets. It gathers investment fundamentals and technicals into a simple rating of "bullish," "neutral," or "bearish."

Take a look at this one-month Zoom chart with some data from the Power Gauge...

The "smart money" on Wall Street had its eyes locked on Zoom. You can see it in the Chaikin Money Flow indicator. As the stock price crossed above its long-term trend line, these institutional investors dove in.

Again, this isn't a coincidence. This influx of smart money drove the share price even higher.

Naturally, this growth pushed Zoom into "bullish territory" in the Power Gauge. Today, the stock earns a "very bullish" rating.

Folks, there's something special about Zoom's business that has helped protect it from the longer, broad downtrend in the software space.

You see, many investors fear AI could render certain software irrelevant. But that sentiment isn't hitting Zoom...

Using AI to Augment Instead of Replace

Again, Zoom's software is for videoconferencing. The platform allows folks to collaborate for work, school, or recreational purposes.

Of course, the company includes an AI model in its software. But it augments the main function rather than replaces it...

Zoom's AI takes notes and captures the context of users' conversations in real time. Then, it turns those notes into briefs or documents... or even assists with follow-up actions to streamline workflows.

As AI develops, humans will still need ways to communicate online – especially in recreational ways. So it's unlikely that AI agents can outright replace this basic human need.

But as I noted, AI can provide a productivity boost for Zoom users. The company's business can benefit from advancements in AI.

Of course, Zoom isn't the only example of this concept. Another, although smaller, videoconferencing stock – RingCentral (RNG) – is among the six stocks that rank "bullish" or better in XSW today.

As a whole, the Power Gauge says the software industry is still risky right now...

But this shows just how much investors can benefit from finding stocks that stand out from the rest in their industry.

And at Chaikin Analytics, the Power Gauge is at our side to help do just that.

Good investing,

Vic Lederman

Editor's note: AI and tech sentiment is changing rapidly today. Being a selective investor is more important than ever... That's why Chaikin Analytics founder Marc Chaikin went on camera earlier this week to share a new twist on what he sees coming in 2026. As he revealed, if you understand what's coming next to certain breakthrough sectors, you'll have multiple chances to double your money.