Tech Weakness Is Forcing Rotation — I’m Targeting This Undervalued AI Name
Rotation is the question as rates pressure the market. Here’s one way I’m playing it.
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The market is mixed with a negative bias on Monday, and technology stocks are seeing increased selling pressure. Breadth is running positive, but once again, there are more new lows than new highs. The Dow Jones Industrial Average is the only index in positive territory, as some recent laggards, such as McDonald’s (MCD) and Salesforce (CRM), benefit from rotational action.
I am watching closely for better rotational action, but interest rates are a problem that hurts the entire market to some degree. The big question is whether money coming out of the extended tech names will flow into small-caps and lift the equal-weight indexes. So far there are a few signs of rotation, but it is fragile.
Here is a video where I share some additional thoughts.
Five9 Steps Out of a Long Downtrend
I am looking for new names to accumulate while the overall market struggles. One stock that popped up is leveraged to AI but trades at a single-digit P/E.
Five9 (FIVN) is a cloud-based contact center software company that provides AI-powered customer experience solutions to enterprises, handling customer interactions across voice, chat, email, and social channels through a single integrated platform.
After spending four-plus years in a steady downtrend, Five9 came onto the radar when the company reported Q1 2026 results on April 30 after the close, and the stock surged the next session. Revenue grew 9.2% to $305.3 million, versus consensus near $300 million, and adjusted earnings came in at $0.76 per share, beating consensus near $0.69. The company raised full-year revenue guidance to $1.26 billion at the midpoint with adjusted EPS guidance of $3.26.
AI revenue grew 68% year over year and now represents 13% of subscription revenue. Management framed the shift this way: As AI replaces seats, those dollars are not leaving the contact center but are getting reallocated toward software, which suggests Five9’s revenue expansion may be in the early stages. The company announced a new $200 million share repurchase program on top of an accelerated $90 million buyback already underway, and reaffirmed a full-year free cash flow target of approximately $175 million.
Analyst price targets moved higher after the report. Mizuho raised its target to $32 with an Outperform rating, and Rosenblatt moved to $29 with a Buy rating. Roughly 20 analysts cover the stock, with an average 12-month target near $27.80.
On an adjusted basis, Five9 trades at a trailing P/E of about 7 and a forward P/E near 6.4, with a forward price-to-earnings-growth (PEG) ratio of 0.75. Any PEG reading under 1.0 is generally considered undervalued.
Technically, the shares have been flagging over the past couple of weeks and holding support at the 200-day moving average as they digest the post-earnings push past long-term descending resistance. A move out of that pattern could attract attention.
Using AI to Rebuild the Business
The theme here, I think, will be a winner going forward. It is companies using AI to change the foundation of their business rather than selling AI as a tool to other businesses. They are using AI to build better products and services, and most of these names are at an early stage.
Overall market action is an issue, but I like the development I am seeing in smaller stocks under the surface. They may need time to develop and will have to deal with broader market pressure, but there are names here that I think pay off well down the road.
At the time of publication, Re Shark was Long FIVN and NVDA.
