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What You Need to Know
- Software stocks are oversold and overextended, ready to rebound when a catalyst emerges.
- AI disruption fears are overblown, providing opportunities for significant outperformance in upcoming quarters.
- Analyst trends indicate SaaS stocks are at deep value levels, and institutions are accumulating them.
Software stocks got hammered in 2025 and early 2026 because of AI disruption fears. However, as legitimate as the concern may be, the corresponding sell-off was driven by emotions. The depth of the declines was an overreaction, and as a result, software stocks have overextended and are primed to rebound.
The question is how long it takes for the bottoms to form and for the rebound to begin. It may be a few quarters, as long as it takes for the winners to rise and earnings outlooks to stabilize, but a rebound is likely. This is an examination of four winners ready to lead the pack once the software rebound begins.
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Salesforce Is Underestimated by the Market
Salesforce (NYSE: CRM) is the leading software-as-a-service (SaaS) company investors should watch. Its cloud-native, AI-native, data-rich customer relationship services have been compounded by agentic AI tools and integration with major AI models.
Enterprises looking for customer-focused services, data-driven insights, and automation need not go to any single AI provider, as Salesforce is a one-stop AI shop. It is a poster child for the SaaS group, underpinned by analyst sentiment. Recent earnings included outperformance, guidance forecasts acceleration, and internal metrics, including RPO and other forward-looking details, suggesting caution in that forecast.
Analysts played a role in CRM’s stock price decline; however, the trends highlight market overreaction, as sentiment remains pegged at a consensus of Moderate Buy.
Additionally, the bias of 43 analysts is bullish, with 70% rating the stock as a Buy or better, and the low-end target suggests a 15% upside is the minimum to expect.
Catalysts for a move higher include upcoming earnings reports, as company guidance implies a return to double-digit growth, contrary to the high-single-digit pace forecast by analysts.
Monday.com: Market Capitulation Is in the Charts
Monday.com’s (NASDAQ: MNDY) results and outlook aligned with Salesforce. Details within the Q4 2025 earnings report revealed increasing momentum driven by large businesses and services penetration.
While the earnings results blew past consensus, the guidance posed a problem, as management gave a guide below the analysts' high bar.
Another sticking point was plans for increased spending, focused on marketing and product development. Notably, this spending should drive results and is likely to pay off over time.
Monday.com's stock price action suggests the market is in capitulation. Selling accelerated in pre-market trading, opening a gap in the chart that put price action at long-term, historical lows.
The likely outcome is that this market will consolidate at this level, well below the analysts’ lowest target, until a catalyst for market sentiment emerges.
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Workday: Institutions Accumulate This Software Stock
Workday (NASDAQ: WDAY) brings up another factor these stocks have in common: institutions are accumulating them.
The data from MarketBeat reveals this group has bought WDAY at an aggressive $2-to-$1 pace over the trailing 12-month period and is sustaining the trend in early 2026.
The likely outcome is that this group will continue to acquire shares due to the value proposition, as reflected in institutional trends and forward outlook.
AI is disrupting the growth outlook, but forecasts remain strong, implying sustainable, double-digit growth for this and other software leaders, putting long-term P/E ratios in deep value territory. Trading at 10X the 2030 forecast, this stock could double over the coming years.
ServiceNow: Growth, Cash Flow, and Capital Returns
ServiceNow’s (NYSE: NOW) automation business and cash flow strength are evident in its capital returns.
The board recently authorized an additional $5 billion in share repurchases, sufficient to offset the dilution of share-based compensation for many quarters while investing in growth and maintaining balance sheet health. The company's performance growth is slowing but remains in the high double digits, and it outperformed in 2025. The guidance for 2026 is solid, including the expectation that growth and cash flow will continue to strengthen.
The consensus of 44 analysts is that this stock is a Moderate Buy, and the Buy-side bias is over 80%.
A modest, double-digit upside is forecast at the low-end target. Institutions, likewise, are accumulating this stock, ramping purchases to over $10 per $1 in sales in early Q1 2026.
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