The SaaS Sector's Rebound: Is Now the Time to Buy High-Quality Growth Tech Stocks Like Twilio, Fastly, and DocuSign?

The SaaS sector has entered a pivotal inflection point. Following the July 2025 CPI report—showing a 2.7% annual inflation rise and a 3.1% core CPI increase—the market priced in a 67% probability of a second Fed rate cut by October 2025. This shift has reignited investor appetite for long-duration growth assets, with SaaS stocks surging 13.0% in the June quarter, outpacing the S&P 500's 10.6% gain. Enterprise value (EV) multiples for SaaS companies rose to 6.5x 2025 revenue and 5.6x 2026 revenue, reflecting renewed optimism. But with sector divergence widening, the question remains: Are Twilio, Fastly, and DocuSign positioned to capitalize on this macro-driven rebound?

Macro-Driven Valuation Opportunities

The Fed's pivot toward rate cuts has directly benefited SaaS firms, which rely on discounted cash flow models. Lower discount rates amplify the present value of future earnings, particularly for companies with durable revenue streams and high net revenue retention (NRR). Post-CPI optimism has also spurred M&A activity, with strategic buyers prioritizing AI-native SaaS platforms. For instance, AI-integrated leaders like Palantir and Snowflake traded at 11.7x EV/TTM revenue, while lower-NRR peers languished at 5.6x. This premium underscores the market's demand for defensible moats in an AI-driven economy.

Twilio: Communications Infrastructure with AI-Driven Momentum

Twilio's Q2 2025 results highlight its resilience. Revenue grew 13% YoY to $1.23 billion, driven by a 14% increase in its core Communications segment. The company's Dollar-Based Net Expansion Rate (NRR) improved to 108%, up from 102% in Q2 2024, signaling stronger customer retention. Free cash flow surged 21% to $263.5 million, and the firm raised full-year guidance to 9–10% organic revenue growth.

Twilio's strategic focus on AI integration is critical. At its Signal conference, the company showcased AI-powered tools to enhance customer engagement, positioning itself as the “infrastructure layer for customer experience.” While specific AI revenue metrics remain opaque, its non-GAAP operating margin of 18.0% and $221 million in operating income suggest robust profitability. With a trailing non-GAAP P/E ratio of ~12x (based on $1.19 EPS and a $14.30 stock price), Twilio appears undervalued relative to its AI-driven growth potential.

Fastly: Edge Computing and AI-Enhanced Security

Fastly's Q2 2025 performance reflects its pivot from growth-at-all-costs to disciplined execution. Revenue rose 12.3% YoY to $148.7 million, with enterprise revenue up 15.4%. NRR improved to 104%, and operating losses narrowed to $4.6 million, with free cash flow margin hitting 7.3%. The company upgraded full-year revenue guidance to $598 million and projected positive free cash flow for 2025.

Fastly's AI strategy centers on edge computing and security. By integrating AI into its edge platform, the company aims to optimize performance and reduce latency for clients. Its recent leadership changes, including a new President for Go-to-Market, signal a focus on customer acquisition and retention. At a forward P/E of ~15x (based on $0.03 non-GAAP loss per share and a $1.10 stock price), Fastly's valuation appears attractive for investors betting on its AI-driven edge infrastructure.

DocuSign: AI-Powered Agreement Automation

DocuSign's Q2 2025 results underscore its transition from a document-signing platform to an AI-powered agreement management leader. Revenue grew 7% YoY to $736 million, with subscription revenue up 7%. The company launched its Intelligent Agreement Management (IAM) platform, leveraging AI to automate workflows and reduce manual tasks. IAM's general availability in the U.S. and planned global expansion position DocuSign to capture market share in the $1.5 trillion contract lifecycle management space.

Financially, DocuSign's free cash flow increased to $197.9 million, and it maintained a $1.0 billion cash balance. With a trailing P/S ratio of ~6x (based on $736 million revenue and a $4.5 billion market cap), the stock trades at a discount to peers like Adobe and Salesforce. Its AI-driven IAM platform could drive NRR above 120% in the coming years, aligning with the sector's premium for high-retention SaaS businesses.

Strategic Buying Moments: Navigating Divergence

The SaaS sector's divergence highlights the importance of strategic AI integration. Twilio, Fastly, and DocuSign all demonstrate strong fundamentals, but their AI strategies and NRR metrics will determine long-term success. For example, Salesforce and ServiceNow's underperformance (YTD declines of 19% and 15%, respectively) underscores the risks of lagging in AI innovation.

Investors should prioritize companies with:
1. High NRR (120%+), indicating sticky, scalable revenue.
2. Defensible AI moats, such as Twilio's customer experience tools or DocuSign's IAM platform.
3. Strong free cash flow generation, which supports reinvestment and shareholder returns.

Conclusion: A Case for Selective Entry

The post-CPI environment has created a favorable backdrop for SaaS stocks, particularly those with AI-native business models. Twilio, Fastly, and DocuSign each offer compelling entry points, but their valuations and growth trajectories warrant careful analysis. Twilio's communications infrastructure and AI integration, Fastly's edge computing expertise, and DocuSign's AI-powered agreement automation align with macro trends. However, investors must remain cautious of sector volatility and ensure these companies maintain their AI momentum.

For those seeking exposure to the SaaS rebound, a diversified approach—weighted toward high-NRR, AI-first leaders—could position portfolios to capitalize on the sector's next phase of growth. As the Fed's rate-cut cycle unfolds, the discount rate tailwinds for SaaS will likely persist, making now a strategic moment to act."""