The last few weeks have been quite turbulent for some stock market investors. While the FTSE 100 has marched upward and the S&P 500 has remained relatively stable, the same can’t be said for many software and data-oriented businesses.
In the US, Workday shares are down almost 30% since the start of the year. Meanwhile, here in the UK, RELX (LSE:REL) has fallen by a similarly painful 23%. And there’s a long list of other businesses that have seen similar drops in share price and investors rebalance away from tech.
But what does this all mean for the wider stock market? And has a buying opportunity emerged for these sold-off stocks?
Updated market forecasts
For the FTSE 100, the outlook remains fairly optimistic. With a relatively limited exposure to the tech sector, analysts are largely predicting the UK’s flagship index to have another strong year, supported by ever-increasing dividend payments.
The same sadly doesn’t seem to apply to the S&P 500. With much more significant exposure to technology stocks, opinions from analysts remain fairly mixed.
Some believe the US index will resume its upward trajectory, while others are concerned about the recent sell-offs spreading into a wider correction. And it’s not hard to see why, given the economic uncertainty across the pond, combined with elevated valuations.
Opportunities in tech?
Even after their recent tumble, many US tech stocks remain pretty expensive. Workday, for example, still trades at a price-to-earnings ratio of 61.
But when it comes to UK-based businesses, the valuations are looking far more reasonable. For the first time in over half a decade, RELX shares are trading at an earnings multiple of 20. While that’s still far from value stock territory, it does beg the question whether now might be a good time to buy.
Risk versus reward
The big concern among investors today is the rise of artificial intelligence (AI) models that can replicate the functionality of existing enterprise software solutions at a much lower cost for customers.
Even if these cheaper AI tools don’t deliver the same level of quality, if the results are ‘good enough’ for regular everyday tasks, businesses may be able to reduce the amount they rely on existing expensive software or data packages.
Having said that, it’s important to recognise that despite all these new fears, RELX hasn’t actually been disrupted yet. In fact, thanks to management investing in its own suite of AI solutions, the group’s latest results were pretty solid, delivering revenue, earnings, and dividend growth. And it seems this trend’s expected to continue throughout the rest of 2026.
So where does that leave investors?
What’s the verdict?
If AI disruption does emerge, it won’t happen overnight. Companies have built their entire workflows using data pipelines from companies like RELX. And retraining staff to use new tools that haven’t been properly field-tested yet is a lengthy process.
RELX could use AI to keep customers locked within its ecosystem through organic switching costs. That will obviously require good execution, which isn’t guaranteed. But with the stock market now pricing RELX as if it’s already been decimated by these new models, it’s hard not to wonder if investors have overreacted.
That’s why I think RELX is worth deeper investigation.
