Many analysts on Wall Street continue to assert that software businesses and their investment potential remain strong.
Artificial intelligence (AI) is rapidly evolving. Following the introduction of OpenAI’s ChatGPT, investors have started to question the extent to which AI could jeopardize jobs across various sectors. With Anthropic’s Claude Cowork tool now capable of autonomously handling tasks typically performed by multiple software applications, it is more akin to a colleague than just a chatbot. Focus has shifted back to software, which was previously regarded as a highly attractive market sector.
Since December 10, the iShares Expanded Tech-Software Sector ETF has declined by more than 22% (as of February 3), officially marking software stocks as experiencing a bear market. Despite market concerns, many Wall Street analysts believe the sell-off might be exaggerated and that several software stocks present enticing prospects.
Here are three software stocks that analysts project will see an upside of 47% to 63% according to Wall Street estimates.
Datadog: 61% Upside
The cloud monitoring and security firm Datadog DDOG +4.65% has endured a significant downturn since peaking at nearly $200 per share in early November, recently trading around $120.
Datadog provides a variety of services, such as monitoring server infrastructure, identifying threats and breaches, and tracking user interactions to enhance cloud performance. While AI could potentially take over some of these roles, it’s likely that firms like Datadog will utilize AI for further automation and new business opportunities. Analyst Gil Luria from D.A. Davidson noted that nothing fundamentally about the software business model has really changed. Projections indicate revenue growth of 20% for the company by 2026.
Snowflake: 63% Upside
Snowflake SNOW +7.48% is another data-centric business that debuted in late 2020, quickly becoming popular. The company accumulates and allows businesses to analyze vast amounts of data, facilitating secure storage and sharing across various platforms, including Amazon Web Services, Microsoft Azure, and Google Cloud.
Yet, Snowflake struggles to convince investors of its AI strategy and currently isn’t profitable, leading to disappointment with its recent guidance amidst high valuation concerns. CEO Sridhar Ramaswamy stated that AI usage is more nuanced than an all-or-nothing approach, further emphasizing partnerships with AI leaders like Palantir Technologies and a recent $200 million deal with OpenAI.
Microsoft: 47% Upside
It’s somewhat peculiar to label Microsoft solely as a software company, particularly since it’s anticipated to be a key beneficiary of the AI surge. However, the stocks have dropped over 23% in the last six months, covering various software divisions, including its Microsoft 365 platform.
The major decline began after the January 28, 2026, earnings report, where lower-than-expected growth in Microsoft’s vital Azure cloud segment prompted concerns, given the company’s significant AI infrastructure investments. Analysts from UBS pointed out that despite announcing its AI assistant Copilot has 15 million paid users, the growth in Microsoft 365 revenue remains stagnant.
While there’s anxiety surrounding software stocks amid AI worries, technology isn’t universally replacing software or fortifying it. Analysts still view Microsoft as a solid way to access AI exposure, with 34 out of 35 analysts issuing buy ratings and an average price target suggesting nearly 47% upside, as reported by TipRanks.
