Nvidia's Jensen Huang Thinks the Software Sell-Off Is Wrong: 1 Great Stock to Buy on a Dip

It's no secret that software stocks have been sold off amid market fears of the looming threat from artificial intelligence (AI). After all, why buy multiple licenses of expensive software when AI agents can replace existing software, make it easier for companies to change software providers, and replace the work of software users? That's the logic behind the sell-off, but Nvidia's CEO Jensen Huang thinks the market is wrong. Here's why and also why PTC (NASDAQ: PTC) could be a great stock to buy right now.

Software stock sell-off

The crux of Huang's argument is that instead of AI agents replacing software tools, they will simply use them more productively. This could actually add value to some software solutions by increasing the speed and depth of the actionable insights they generate.

Image source: Getty Images.

This is no more apparent than in some industrial software stocks that act as operating systems for physical assets. One great example of this comes from PTC (NASDAQ: PTC). The company is taking advantage of the opportunity to embed AI agents into its solutions, enabling it to leverage the vast amount of digital data (originating from the physical world) generated by those solutions.

PTC is embedding AI into its solutions

The company's computer-aided design (CAD) and product lifecycle management (PLM) software solutions create a digital thread for a product as it's designed, manufactured, serviced, and ultimately disposed of. This creates a mass of digital data from which users can draw valuable insights to improve the whole process within a "digital loop."

Consequently, PTC is embedding AI into its solutions so "AI is then applied to this contextual data and even more substantial transformations become possible for our customers," according to CEO Neil Barua on a recent earnings call.

The stock has underperformed the market over the last year due to the concerns outlined earlier.

However, with management expecting $1 billion in free cash flow (FCF) in 2026, the stock trades at 19.4x this year's expected FCF. It's a valuation that makes the stock look very cheap relative to its historical levels.

PTC Price to Free Cash Flow data by YCharts.

A stock to buy?

It's important to understand that U.S. manufacturing has been weak over the last couple of years with manufacturing survey data continually indicating contraction, yet PTC continues to grow its annual run rate (ARR) at a high single-digit rate. As such, a combination of a cyclical recovery in the industrial sector and growth coming from embedding AI into its software can drive earnings higher in the coming years.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and PTC. The Motley Fool has a disclosure policy.