J.P. Morgan turned bearish on a number of software stocks, saying that investors underestimate the severity and duration of the coronavirus risk for them.
The investment firm's analysts downgraded Twilio (TWLO) - Get Report and Smartsheet (SMAR) - Get Report to neutral from overweight, while Alteryx (AYX) - Get Report, Coupa Software (COUP) - Get Report, Ceridian HCM (CDAY) - Get Report and Paycom Software (PAYX) - Get Report were cut to underweight from neutral.
"Investors are underestimating the severity of bookings impact across renewals, upsells and new-logo business," said analyst Mark Murphy.
Murphy notes the "historically epic 25% oversold rally" in the S&P 500 since March 23, helping lead to a change of tone at the firm.
Add to that the economic uncertainty surrounding the covid-19 outbreak, and JPMorgan says pumping the brakes on the sector is prudent.
"While we leave macroeconomics to the experts in that field, we have been shocked by the magnitude and suddenness of recent negative economic indicators," Murphy wrote.
"At this juncture we do not sense investors are adequately aware or realistically incorporating these developments into their thought process."
Spending on Amazon Web Services (AMZN) - Get Report and Azure (MSFT) - Get Report may prove resilient in the current climate as digital storage and platform needs aren't expected to crest and could even lead to "faster public cloud adoption as companies understand the need to scale up remote work capabilities," Murphy said.
At last check shares of Smartsheet dropped 5.4%, Coupa Software shares eased 0.5%, Alteryx declined 2.5%, Ceridian gave up 1.2%, Paychex rose 0.9% and Twilio slipped 0.2%.