The Software Recovery Already Started: 5 Stocks to Buy Now

Some of the world’s leading software franchises have been under extreme pressure over the past several months as fears of AI disruption swept through the market. Yet beneath the surface, many of these businesses have experienced little to no change in their underlying fundamentals. Revenue and earnings forecasts for many remain strong, with expected top- and bottom-line growth still in the high teens to mid-20% range. Meanwhile, valuations across the sector have been compressed to some of the most attractive levels seen in years.

Will artificial intelligence dramatically reshape productivity and business processes? Almost certainly. But that does not mean the world’s leading enterprise software companies are suddenly headed for obsolescence. In fact, many of them are likely to be among the largest beneficiaries of the AI wave as they integrate new capabilities into their platforms and expand the value they provide to customers.

The iShares Expanded Tech-Software ETF (IGV) has fallen as much as 35% in just the last couple of months, with many individual components declining more than 50% over the same period. That type of broad, indiscriminate selling often occurs near inflection points, when sentiment becomes excessively pessimistic.

Recently, however, the sector has begun to stabilize, and several leading software names are already showing signs of recovery. Whether the absolute low is in place is impossible to know, but a number of high-quality companies are now trading at levels that offer compelling long-term expected returns.

Among the most attractive opportunities right now are Salesforce (CRM), ServiceNow (NOW), AppLovin (APP), The Trade Desk (TTD), and HubSpot (HUBS).

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Software Stocks Offer Attractive GARP Opportunities

Software companies have long benefited from some of the most attractive business models in the market, characterized by high margins, recurring revenue, minimal capital requirements, and near-zero marginal costs. These advantages helped the sector command premium valuations for years. Investors widely recognized the strength of the model, and many leading software stocks traded at extremely elevated multiples. Really, they were untenably high for many.

Even after the recent correction, some names in the sector still appear expensive. However, the sharp selloff has brought a number of high-quality companies back to much more reasonable valuations, particularly when viewed through a growth-at-a-reasonable-price (GARP) lens. For investors willing to look past the recent volatility, several leading software businesses now offer compelling combinations of growth and valuation.

HubSpot is the only stock in the group currently carrying a Zacks Rank #1 (Strong Buy) rating. Shares trade at roughly 23.7x forward earnings, with revenue expected to grow in the high teens this year and next. Over the longer term, analysts project earnings growth of nearly 19% annually over the next three to five years.

AppLovin has been one of the market’s biggest winners since 2023 thanks to its powerful position within the digital advertising ecosystem. The stock trades at approximately 32.6x forward earnings, with sales expected to grow nearly 40% this year and around 30% next year, while earnings are projected to expand at more than 31% annually over the long term.

ServiceNow continues to deliver exceptional growth as enterprises expand their use of workflow automation and digital infrastructure tools. Shares trade at roughly 29.1x forward earnings, with revenue expected to grow about 20% this year and 18% next year, while analysts forecast long-term earnings growth of approximately 24% annually.

Salesforce, one of the foundational companies in the SaaS industry, now trades at a much more modest 15.3x forward earnings. While growth has naturally slowed as the business has matured, revenue is still expected to expand 11% this year and 9% next year, with long-term earnings growth projected at roughly 14% annually.

Finally, The Trade Desk may represent the deepest value opportunity in the group. Shares currently trade at around 14.3x forward earnings, while analysts expect earnings to grow nearly 20% annually over the long term. Revenue is forecast to expand 13% this year and 14% next year, suggesting the company continues to deliver solid growth at a very reasonable valuation.

AI Opportunities for Software Stocks

Artificial intelligence may actually become a growth driver for software companies. Many of the industry’s leading platforms are embedding AI deeply into their products, automating workflows, improving decision making, and enhancing capabilities for customers. These developments could accelerate adoption and expand the long-term opportunity for several major software names.

That said, the way people interact with software may evolve significantly as AI tools mature. There are no guarantees that today’s implementations will ultimately define how software is used in the future. However, the key takeaway is that many of the industry’s leaders are actively experimenting, integrating new technologies, and demonstrating a willingness to innovate rather than resist the shift.

HubSpot has been rapidly integrating AI across its customer relationship management platform through its Breeze AI tools. These features help automate marketing content creation, customer support responses, and sales prospecting workflows, allowing small and mid-sized businesses to run sophisticated marketing and sales operations with far less manual effort.

AppLovin is leveraging AI within its AXON advertising engine, which uses machine learning to optimize ad targeting and maximize return on ad spend for mobile developers. The system continuously analyzes massive volumes of user behavior data to improve ad placements, and recent AI improvements have significantly boosted advertiser performance and monetization for app developers.

ServiceNow is embedding generative AI across its enterprise workflow platform through Now Assist, which automates tasks such as IT support resolution, HR requests, and customer service operations. These AI tools help companies reduce manual workloads while accelerating service response times across large organizations.

Salesforce has made AI a central pillar of its platform through Einstein AI and the new Einstein Copilot, which can analyze customer data, generate reports, automate workflows, and assist sales teams in identifying opportunities. By embedding AI directly into CRM processes, Salesforce is transforming how companies manage customer relationships and internal sales operations.

The Trade Desk is integrating AI throughout its programmatic advertising platform to improve campaign optimization and audience targeting. Its AI-driven bidding and optimization tools allow advertisers to allocate budgets more efficiently across channels while continuously refining targeting based on real-time performance data.

Taken together, these developments illustrate that rather than being displaced by AI, many leading software companies are attempting to incorporate it directly into their platforms, adapting to the shift while continuing to evolve their products.

Should Investors Buy Shares in CRM, NOW, HUBS, APP and TTD?

The recent selloff in software stocks appears to have been driven largely by sentiment rather than any meaningful deterioration in fundamentals. Revenue growth remains strong across many of the sector’s leaders, and companies continue to enhance their platforms with new AI-driven capabilities.

At the same time, valuations have reset significantly after years of elevated multiples. For investors focused on growth at a reasonable price, several high-quality software companies are now trading at far more attractive levels.

While it is impossible to know whether the exact bottom is in place, companies like Salesforce, ServiceNow, HubSpot, AppLovin, and The Trade Desk remain leaders in their respective markets and appear well positioned to benefit from the next wave of AI-driven productivity gains. For investors looking to selectively add exposure to software after a deep correction, these stocks stand out as compelling opportunities.

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Salesforce, Inc. (CRM): Free Stock Analysis Report

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The Trade Desk (TTD): Free Stock Analysis Report

iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

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