Investors Dump AI Software, But I'm Looking for Pullback Opportunities
Let's discuss what Microsoft’s earnings signal, Palantir, a case of 'someone knows something', small-caps, Roku, and my game plan.
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Market players are currently sorting out the reaction to Wednesday night’s earnings news, and the primary theme so far is to dump AI-related software. The Microsoft (MSFT) report indicated that the AI software niche faces margin pressures and isn’t nearly as profitable or growing as fast as Meta’s (META) advertising-focused model.
The leading losers in the Nasdaq 100 (QQQ) are all major software companies, including Atlassian (TEAM) , Workday (WDAY) , and Autodesk (ADSK) . Meanwhile, one of the darlings of the AI group, Palantir (PLTR) , is also getting hit and has breached its 200-day simple moving average for the first time since April 2023. It has been a remarkable ride, and it may not be over, but significant technical damage has been done now that will need to be repaired.
Market Breadth and Small-Cap Struggles
Overall market action started slightly positive, but has slipped to even. New 12-month lows are expanding to around 170. Small-caps (IWM) are trying to break a four-day run of poor relative performance and not doing too well. Traders aren’t willing to do much bottom fishing as the mood turns gloomy.
The biotechnology sector (IBB) , which is a sector I favor, was hit hard on Wednesday and produced my worst day so far in 2026. I am not particularly concerned about the sector and anticipate a rebound, but we aren’t seeing any signs of an energetic bounce.
I did add to one of my favorite long-term and trading stocks, Xeris Biopharma (XERS) . I am also adding to ClearPoint Neuro (CLPT) as it tests important support around $13.
A Case of 'Someone Knows Something'
The other day I mentioned buying Viavi Solutions (VIAV) as it broke out of a cup-and-handle pattern in front of its earnings report. This is a good example of "someone probably knows something." It was a great-looking chart, and for some reason, buyers were willing to step in front of the report.
The company earned $0.22, beating a consensus estimate of $0.19, and raised guidance. I see a half-dozen target increases ranging from $24 to $28.
VIAV used to trade under the symbol JDSU. Back in the internet bubble days, traders joked that it stood for "Just Don’t Sell Us." That sounds like good advice, and I anticipate building up this position as the chart develops.
Watching the Roku Rebound
Another stock I’m watching is going in the wrong direction. Roku (ROKU) dropped sharply Wednesday and is down again Thursday as it approaches the $99 level. It is due to report earnings on February 12.
Roku has consistently beat analyst estimates the last four quarters and was likely pressured due to poor Netflix (NFLX) price action. I expect it to rebound as its earnings date approaches. On January 12, Bank of America raised its price target to $140 from $115. I have a core position and am adding trading shares.
Strategic Game Plan
There are quite a few opportunities on pullbacks, as pressure on indexes and ETFs is driving poor action in many stocks with solid fundamentals. This is top-down action, and it is important to understand the fundamentals of what you are buying.
Some stocks, like those in the software group, are being sold for a reason, while many smaller stocks in other groups are being sold simply because they are smaller stocks.
At the time of publication, Rev Shark was long XERS, CLPT, VIAV and ROKU.
