According to Morgan Stanley, the sharp pullback in software valuations has created buying opportunities across major technology names. Software stocks have been under pressure in recent months as AI has gone from being a growth driver to a potential source of disruption.
The latest selloff in the industry was triggered by a new legal tool from Anthropic’s Claude large language model. According to Analyst Keith Weiss, “peak uncertainty has severely impacted Software multiples,” leading to an estimated 33% drop since October 2025.
He further added that at “~4.4X EV/Sales, the average software multiple is back into the range last seen during the peak uncertainty around Public Cloud.”
Weiss believes that markets are failing to appreciate how established software names can still capture meaningful upside from adopting artificial intelligence.
“The bear case arguments around GenAI appear to give too little credence to the ability of incumbent software vendors to participate in this innovation cycle.”
The firm has highlighted Microsoft, Intuit, Salesforce, ServiceNow, Atlassian, Snowflake, Cloudflare, Shopify, and Palo Alto Networks as the most attractive opportunities on the back of product cycles, improving financial metrics and discounted valuations.
For this article, we selected AI stocks by going through news articles, stock analysis, and press releases. These stocks are also popular among hedge funds. The hedge fund data is as of Q3 2025.
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10. Super Micro Computer, Inc. (NASDAQ:SMCI)
Number of Hedge Fund Holders: 42
Super Micro Computer, Inc. (NASDAQ:SMCI) is one of the 10 AI Stocks Analysts Are Watching. On February 4, Rosenblatt analyst Kevin Cassidy reiterated a Buy rating on the stock with a $50.00 price target. The rating affirmation follows SMCI’s robust fiscal Q2 2026 results.
SMCI’s had a significant earnings and revenue beat, posting an earnings per share (EPS) of $0.69, a 40.82% surprise over the anticipated $0.49. Meanwhile, revenue reached $12.7 billion, outperforming the forecasted $10.42 billion by 21.88%.
The firm highlighted how SMCI’s revenue of $12.7 billion represented a 153% quarter-over-quarter growth. This growth was attributed to ramping production of the GB300 system, which it noted to be “one of the most complicated systems ever produced.”
Rosenblatt anticipates that SMCI will maintain its current revenue and production rate in the third quarter of fiscal year 2026. It is also likely to expand the adoption of its “One-Stop Shop” DCBBS (Data Center Building Block Solutions) offering.
Through DCBBS, customers are able to deploy AI factories faster and with engineering assurance, a significant opportunity for SMCI to expand its gross margins as its customer base grows.
With operating expenses running at roughly 2% of revenue, the firm said that any improvement in gross margins would likely translate entirely into earnings. However, it has moderated its near-term margin outlook as it continues to see “many opportunities to return to double-digit GM.”
Super Micro Computer, Inc. (NASDAQ:SMCI) designs and manufactures high-performance server and storage solutions for data centers, cloud computing, AI, and edge computing worldwide.
9. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 63
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the 10 AI Stocks Analysts Are Watching. On February 5, Piper Sandler analyst Harsh Kumar reiterated an Overweight rating on the stock with a $200.00 price target. The rating affirmation follows QCOM’s December 2026 quarter results.
The company reported stronger-than-expected earnings for the first quarter of fiscal 2026, with EPS of $3.50, beating the forecast of $3.40. It also exceeded revenue expectations, posting $12.25 billion compared to the expected $12.11 billion.
While QCOM did beat expectations, its March guidance was considerably tempered by memory constraints at certain OEMs, particularly in China, which led to reduced supply forecasts.
For the March 2026 quarter, QCOM’s handset business is forecast to decline sharply by 22% sequentially. Meanwhile, other key segments, such as Automotive and IoT, continue to establish strong growth.
The research firm does not anticipate a significant recovery in the handset business through September 2027 due to tight memory conditions. It also mentioned that 2027 will be impacted by the Apple agreement.
Qualcomm is expected to provide clarity regarding its data center strategy and ramp during its upcoming analyst day. This, the firm believes, could potentially boost estimates.
QUALCOMM Incorporated (NASDAQ:QCOM) develops wireless technologies, supplies chips for mobile, automotive, and IoT, licenses patents, and invests in emerging tech.
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