By Senad Karaahmetovic

Kash Rangan, Goldman Sachs Analyst has written a client note today discussing the current selloff in the software sector.

Software multiples are down 46% compared to the January peak, which reflects “waning” investor sentiment, according to Rangan.

“We note that results in software were mixed and market reception was lukewarm at best (GS coverage universe down -5%, on average, since reporting 1Q results). The 1Q results either met or exceeded expectations. We think this was too bad for stocks like,.,. and DDOG where investors are accustomed to huge revenue gains driven by pandemics in order to maintain multiples in premium revenue. More importantly, however, were forward-looking indicators (cRPO, bookings, backlog, pipeline) and FY guidance on revenue, operating margins and FCF,” Rangan wrote.

However, Rangan expects Q3 business comps to ease after Q2 while the market could see a positive reaction from “conservative/de-risked 3Q guide.” Overall, the Q2 earnings season “could signal the through in net new business.”

The software sector has been “disproportionately impacted by the rotation out of high-growth, high multiple names,” Rangan adds. The result has been that many companies are trading at a significant discount to their intrinsic worth. Goldman Sachs reminded clients that once the initial set of disappointed results was reported, software stocks reached their bottom in GFC.

Rangan has selected 6 growth + profit companies that Rangan believes will be able to provide protection in times of market turmoil. These include Microsoft (NASDAQ), Salesforce (NYSE), Datadog, (NASDAQ), Ituit (NASDAQ :), and Workday NASDAQ :