Key Takeaways
Boursewatch analyst Dan Romanoff points to ServiceNow as an attractive buy.
Software stocks have lagged AI names by a significant margin for most of 2025.
Software stocks are significantly undervalued, according to Boursewatch analysts, and many have sound fundamentals despite recent declines.
Excitement around artificial intelligence has propelled many technology stocks to record heights, except for one notable group: software. In fact, many of the biggest software stocks are posting significant losses for the year. And by Boursewatch equity analysts’ metrics, some look like bargains.
Driving the losses is a persistent fear that AI will upend the software industry, either by reducing licensing revenue by making it easier and less labor-intensive to perform tasks without human input or by rendering traditional software applications totally obsolete. “There is a lot of concern,” says Morningstar senior equity research analyst Dan Romanoff. “No one really knows how this is going to play out.”
Combine this with the fact that software firms are generating little revenue from AI, a changing forecast for interest rate cuts, and long-tail slowdowns after the covid-era software boom, and you have a recipe for a “brutal” selloff that has accelerated since July and intensified over this past week as the tech sector fell. A side effect of those losses has been a steep drop in valuations, with major software names like ServiceNow NOW, Salesforce CRM, and Adobe ADBE trading at discounts of 20% or more.
Although a pandemic-driven revenue spike has subsided, software stocks consistently outperform the S&P 500 Index in terms of revenue growth, according to Romanoff, who is optimistic despite recent advances in artificial intelligence. “They offer a lot of attractive elements to me that haven’t really changed all that much,” he says, referring to software stocks.
The Software Selloff
While tech stocks generally have had a red-hot run, software has struggled. Adobe is down 35% over the past 12 months and down 27% so far in 2025, putting it on track for its worst quarter since the bear market in 2022. Salesforce is down 27% over the past 12 months and is also on track for its worst year since 2022. HubSpot HUBS shares have fallen 45%. Accenture ACN stock is down 30%. Shares of ServiceNow are down 18%.
The exception is Microsoft MSFT, which is up 19% over the past year. The company was an early investor in OpenAI and is benefitting from the lift AI is giving its cloud business, Azure.
The Morningstar Global AI & Big Data Consensus Index—which includes stocks that are widely held by funds and ETFs focused on the AI theme—is up 26.6% over the past year. The boursewatch Software Index has gained just 2.6% over the same period. Both indexes include Microsoft, which has invested heavily in AI, along with other mega-cap tech firms, like Alphabet GOOGL/GOOG and Meta Platforms META.
The Morningstar US Software Application Index—which includes software infrastructure firms as well as Microsoft—is down more than 7% over the past year. Meanwhile, the boursewatch US Market Index has climbed 12.9%.
Romanoff says that under the hood, many software stocks have solid fundamentals and are attractive for investors. That’s true even as the AI craze muddies the outlook. “It’s almost like the inverse of the internet bubble circa 2000, when everything was sort of going through the roof for no real reason,” he says. “Now, software is falling through the floor.”
