Software stocks, facing headwinds from anxieties surrounding artificial intelligence, are currently undervalued and present buying opportunities, according to a recent analysis by UBS. The firm’s strategists identified Microsoft, ServiceNow, Autodesk, and HubSpot as potential outperformers despite a broad sector downturn in 2026.
The assessment, led by UBS strategist Andrew Garthwaite, comes after a sell-off in software stocks accelerated in early February following the launch of Anthropic’s Claude Cowork AI agent, designed to automate tasks in legal, finance, and marketing. Whereas a brief recovery occurred, the sector subsequently experienced further declines as concerns about AI’s disruptive potential spread to other areas like real estate and wealth management.
Garthwaite noted that the software sector is currently trading at a discount, being “6.1 standard deviations oversold” and exhibiting a “record decoupling from earnings momentum.” This suggests that the market may be excessively pessimistic about the industry’s prospects. UBS analysts found that the recommended stocks all have price-to-earnings ratios below their historical norms, while simultaneously experiencing positive revisions to earnings estimates.
The potential for a weaker U.S. Dollar also contributes to the positive outlook for software companies, as many are significant international earners. Garthwaite explained that software, along with capital goods, has historically benefited from a declining dollar.
Despite the overall sector slump, individual stock performance varies considerably. FactSet data indicates that Microsoft and Autodesk have both fallen approximately 22% in the last six months, while ServiceNow has plunged 40%. HubSpot has experienced the most significant decline, collapsing 69% over the past year. Oracle’s credit default swap rate has remained stable throughout 2026, even as the broader software sector has underperformed the market by 19%.
UBS’s analysis also points to a decoupling between software stock performance and artificial intelligence credit spreads, a dynamic that could signal bullish potential. The firm has issued buy ratings for all four recommended stocks.
