Old Economy Stocks Look Expensive, Software Stocks Seem Cheap: What’s Next for Investors?
By Zev Fima | Published February 23, 2026, 4:53 PM EST
A fresh wave of Wall Street research suggests a growing shift in market sentiment: investors appear to be tiring on software stocks, while “old economy” or cyclical stocks are more in favor. But is this market rotation truly sustainable, or have investors simply swung too far in the opposite direction?
Wall Street’s New Caution on Software
Leading investment firms such as Cantor Fitzgerald, Morgan Stanley, Jefferies, UBS, Stifel, BTIG, and Wedbush have recently reduced price targets across prominent software and cybersecurity names. Workday, Autodesk, Salesforce, and Snowflake have all seen their forecasts lowered amid skepticism about growth prospects in light of transformative artificial intelligence (AI) pressures.
Even cybersecurity firms like CrowdStrike and Palo Alto Networks have not escaped downgrades. Despite these reductions, many analysts still hold these stocks as buys given their current price levels relative to target prices. However, this shift signals a growing recognition that the premium valuations traditionally given to asset-light, high-growth tech companies may be harder to justify in an AI-driven landscape.
The Rise of HALO: Heavy Asset, Low Obsolescence
A key theme capturing investor attention is the concept dubbed “HALO” by CNBC’s Josh Brown. HALO stands for “Heavy Asset, Low Obsolescence,” referring to companies that are perceived as resilient against AI disruption because their businesses rely on tangible assets or essential products and services that AI tools cannot easily replicate.
For example, a Big Mac from McDonald’s or a venti coffee from Starbucks cannot be digitized or replaced by AI prompts. Similarly, companies in industrial and energy sectors producing physical infrastructure—like General Electric Vernova’s gas turbines or Corning’s fiber optic cables—hold unique advantages.
Valuation Trends: Rotation or Overshoot?
Data from State Street ETFs reveals that sectors associated with the HALO theme—energy, industrials, materials, staples, utilities, and healthcare—have experienced valuation expansions above their five-year averages in the past six months. Industrials, including businesses like GE Aerospace, Caterpillar, and RTX Corporation, have reached their highest valuations in several years. The energy sector, led by ExxonMobil and Chevron, has similarly climbed to near multi-year highs.
Conversely, traditional tech-heavy sectors such as information technology and communication services have seen valuations dip below five-year averages. Consumer discretionary, anchored by companies like Amazon and Tesla, has also softened but remains relatively robust given Amazon’s combination of digital and tangible assets.
This divergence points to an ongoing rotation out of “old” secular growth favorites into traditionally cyclical stocks. However, there is unease about how sustainable this trend is, especially as some cyclicals now trade at extended levels, prompting caution from analysts—as illustrated by Jefferies’ recent downgrade of Deere & Company following a 40% rally in 2026. ### The Challenge of Uncertain Earnings and AI’s Impact
Part of Wall Street’s difficulty lies in forecasting the impact of AI. On one hand, investors fear earnings estimates for companies vulnerable to AI disruption may be overly optimistic. On the other, estimates might be too pessimistic for companies poised to harness AI for efficiency and profit growth. This uncertainty breeds mistrust in valuation metrics—if underlying earnings assumptions are uncertain, stock prices based on those figures become harder to trust.
While tech stocks may appear cheap relative to current earnings forecasts, and HALO stocks command valuation premiums, investors are wary of placing too much confidence in either camp. Market fear often causes more volatility and overshooting in prices, regardless of the fundamentals.
Navigating the Market: Strategic Stock Picking Required
Given the current landscape, investors face a nuanced environment where simple categorizations—such as “software will always grow” or “tech stocks are doomed”—do not hold up under scrutiny. The market calls for heightened selectivity and analytical rigor, examining companies individually.
For instance, cybersecurity firms like CrowdStrike and Palo Alto Networks are considered more defensible against AI disruption given their vital role in digital security networks, whereas enterprise software companies like Salesforce, while mission-critical to some, may be more vulnerable to evolving AI-powered business models.
The upcoming Salesforce earnings report will be closely watched, as it may provide more clarity on how AI pressures are affecting core enterprise applications.
Balancing Caution with Opportunity
Investors should be cautious about chasing momentum in either old economy stocks that have run up too far or software names that have been beaten down. Timing remains critical; buying prematurely into falling tech stocks is risky, but so is missing opportunities should a market stabilization occur.
Selling some profits in HALO stocks might be prudent given current lofty valuations, but precipitously abandoning tech stocks could be premature. As the market is still influenced by fear around AI disruption, volatile swings may persist longer than expected.
Final Thoughts
This evolving scenario emphasizes the importance of stock picking over sector bets. In a market environment where valuations can sway dramatically based on uncertain earnings outlooks influenced by AI, investors must ask critical questions about each company’s resilience and potential for sustainable growth.
While it is too early to declare a bottom for tech or a peak for the HALO trade, the divergence in valuations and sentiment suggests the current rotation could be approaching a turning point. Caution, flexibility, and a focus on fundamentals coupled with qualitative business insights will be key to navigating the shifting landscape.
Zev Fima covers market trends and investment analysis. Follow him on Twitter @zevfima.