Technology sector falls out, is this a good buying opportunity? Analysts: Investors need to "carefully select" and avoid "slow growth" software companies.

After a recent adjustment, the attractiveness of the valuation of the technology sector has begun to show, but analysts point out that investors need to be more "picky", especially in the software and semiconductor sub-sectors, where individual stock performance will be significantly differentiated. Data shows that the technology sector as a whole has experienced a pullback. The SPDR ETF (XLK.US), which tracks the technology sector, has fallen more than 14% since its high point in October of last year, exceeding the S&P 500 index by about 8%. Against this backdrop, the overall valuation of technology stocks has fallen to a forward P/E ratio of about 19.4 times for the next 12 months, lower than the S&P 500's 19.9 times, which is rare historically as technology stocks usually command a premium due to higher growth prospects. However, institutions emphasize that low valuation does not necessarily mean universal opportunities. Trivariate Research analyst Adam Parker points out that investors should avoid software companies that are "cheap but have slow growth", as these targets may become "value traps", and instead focus on companies with higher valuations but with more certain growth prospects. Looking at the sub-sectors, market differentiation is particularly pronounced. Network security companies like Palo Alto Networks (PANW.US), CrowdStrike (CRWD.US), and Cloudflare (NET.US) have higher valuations, but their stock prices have performed relatively steadily recently and are still below historical highs. In contrast, software companies with lower valuations like Adobe (ADBE.US), Salesforce (CRM.US), and HubSpot (HUBS.US) have seen their stock prices continue to weaken recently. Analysis suggests that this differentiation stems from changes in the AI competitive landscape. AI companies represented by OpenAI and Anthropic are eroding the traditional functions of sales and marketing software, while complex enterprise-level services such as network security are harder to replace quickly. In the next two years, the profit growth rate of network security companies is expected to be around 20%, higher than the approximately 15% of traditional software companies. In the software field, Twilio (TWLO.US) is seen as one of the companies with a differentiated advantage. Its communication interface (API) services have strong demand in enterprise daily operations and have not been directly replaced by AI. The stock has only fallen by about 15% from its historical high, significantly outperforming the overall performance of the software sector. In the semiconductor sector, institutions are cautious about storage companies. Companies like Micron Technology, Inc. (MU.US) have benefited from AI data center demand in the past five years, but the market is beginning to worry about future risks of overcapacity. Even strong performance from the company has not been able to prevent the stock price from falling. Similar companies include Western Digital Corporation (WDC.US), Sandisk (SNDK.US), and Teradyne, Inc. (TER.US). In comparison, institutions have a more positive view on chip companies that provide core components of AI computing power, such as NVIDIA Corporation (NVDA.US), AMD (AMD.US), and Broadcom Inc. (AVGO.US). These companies currently have valuations between 19 and 25 times, although they have fallen from historical levels, they still have long-term growth potential.