Bank of America raised the target price of 10 software stocks across the board: doubts about the AI impact subsided, and the sector ushered in a reshaping of valuation

The Zhitong Finance App learned that Bank of America analyst Tal Liani's team released a research report on Wednesday, drastically raising the target prices for 10 software stocks, including ServiceNow (NOW.US), Figma (FIG.US), and Snowflake (SNOW.US). The reason is that the software industry's overall valuation multiples are expanding, and market concerns about the disruptive impact of AI continue to ease.

Meanwhile, news of the slowdown in OpenAI's revenue growth further mitigated market fears that “AI will disrupt the software industry”. ServiceNow closed up 6.5% on Wednesday, Figma, Workday, and Adobe rose between 3% and 4%, and iShares Expanded Tech-Software Sector ETF (IGV) closed 1%.

Target price adjustments at a glance: The maximum increase reached 46%

Bank of America's target price adjustments cover the three major sectors of infrastructure software, large-scale software, and application software:

Among them, Workday's target price increase was the most significant — a sharp jump from $140 to $205, an increase of 46%. Snowflake's target price was raised to $395, the absolute highest of all covered targets.

Upward logic: valuation multiples expand, AI concerns subside

Tal Liani made it clear in the report that this increase “is to reflect the expansion of the software industry's overall valuation multiples, and our views on valuation and fundamentals have not changed.”

Analysts attributed the recent strong performance of software stocks to three major factors: strong profits and accelerated growth of some infrastructure software companies; large software and application software companies' valuations regained recognition from a sluggish state; and market concerns about the disruptive impact of AI are easing, and investor sentiment continues to improve.

Benchmark analyst Yi Fu Lee further stated that market sentiment is undergoing a fundamental shift: “The market is beginning to build greater confidence in fundamental improvements, and is increasingly aware that software is becoming a beneficiary of enterprise AI deployment rather than a victim of AI disruption.”

The slowdown in OpenAI's growth also acted as a catalyst. According to reports, OpenAI's second-quarter revenue increased 18% month-on-month to 6.7 billion US dollars, but operating losses increased from 9.3 billion US dollars to 12.3 billion US dollars. Raymond James analyst Adam Tindle pointed out that the slowdown in OpenAI's growth momentum “reduces the perception of an existential threat that AI may stifle software-as-a-service (SaaS) businesses.”

Individual stock rating logic: differentiation from “buying” to “outperforming the market”

Among the major software stocks, ServiceNow and Figma received a “buy” rating. Liani believes that ServiceNow has historical data and background information on enterprise workflows, and has an advantage in implementing agent-based AI solutions. ServiceNow's deep understanding of customer operations will translate into continued revenue growth and free cash flow expansion.

Workday remains “neutral,” and Adobe remains “underperforming.” Analysts believe that the recent rise in the prices of these two stocks has surpassed the signs of an inflection point in fundamental growth. This judgment reveals the ongoing divisions within the software sector: companies with clear AI monetization paths are being re-valued, while the rise driven by sector sentiment alone may be facing a ceiling.

Among infrastructure software, Snowflake received a “buy” rating due to its continued strong growth trend and AI monetization potential. GitLab and Amplitude remain “neutral.”

Among the applications, Box, Asana, and Zeta received a “buy” rating due to their sustainable growth prospects and emerging AI monetization opportunities.

The Bank of America raised its target price for software stocks across the board. This is the latest sign that the software sector has continued to recover since the AI panic sell-off in the first half of the year. As the market gradually fades away with the “AI will kill software” narrative, investors are refocusing on companies that can turn AI into actual revenue growth.

As Benchmark analysts say, the market is “rewarding companies that show tangible evidence of AI adoption, customer spending, and monetization.” ServiceNow has become the best footnote to this logic after it handed over financial reports that exceeded expectations in late July and raised subscription revenue expectations. Meanwhile, the Bank of America's target price increase this time has provided further endorsement from Wall Street for this trend.