US software stocks have come under pressure recently after disappointing updates from major enterprise players, rekindling concerns that artificial intelligence could topple many firms’ business models.
SAP plunged more than 16% on Thursday as analysts flagged a weaker-than-expected cloud backlog and 2026 revenue forecast. ServiceNow also fell 11% on concerns related to AI, even though it projected annual subscription revenue above Wall Street estimates.
“Good, but not good enough,” Morgan Stanley analysts said in a note of ServiceNow’s report. “In an environment of heightened investor skepticism on incumbent application vendors, stable growth, in line with expectations, likely falls short of shifting the narrative.”
These stocks have been witnessing double-digit declines in the past year as investors grow wary about the rapid advances in artificial intelligence, challenging the demand for traditional software licenses and workflows.
“The malaise in software sentiment persists, coupled with a seemingly paradoxical and vicious cycle of depressed valuations, with maintained, if not rising, investor expectations,” J.P.Morgan analysts said in a note.
Microsoft further added to the pressure after it reported a slowdown in cloud growth for the fiscal second quarter and issued softer-than-expected guidance on operating margin for the fiscal third quarter.
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. Elastic N.V. (NYSE:ESTC)
Number of Hedge Fund Holders: 52
Elastic N.V. (NYSE:ESTC) is one of the 10 AI Stocks Gaining Attention on Wall Street. On January 30, Rosenblatt analyst Blair Abernethy lowered the price target on the stock to $110.00 (from $130.00) while maintaining a “Buy” rating. While there are multiple compression and macro pressures for ESTC, the firm sees strength in tool consolidation and AI-led use cases.
Rosenblatt noted that Elastic is expected to report an in-line to marginal beat in Q3/FY 26 results when it reports in late February. It highlighted recent product advancements of the company, such as the general availability release of its Agent Builder, and also the previous realignment of sales on high value customers.
These factors leave the company well-positioned to benefit from tool consolidation trends in log management, legacy SIEM modernization, and development of new AI and agentic applications using the Elastic Search Relevance Engine with vector database capabilities.
The firm noted that it is leaving its estimates unchanged ahead of third quarter, forecasting Elastic Cloud growth of 21% compares to the 22% in second quarter. Nevertheless, it is taking this opportunity to reduce its price target, a reflection of recent comparable multiple compression and ongoing macro concerns which impact enterprise software.
Elastic N.V. (NYSE:ESTC) is a search AI company offering cloud-based solutions.
9. Fortinet, Inc. (NASDAQ:FTNT)
Number of Hedge Fund Holders: 62
Fortinet, Inc. (NASDAQ:FTNT) is one of the 10 AI Stocks Gaining Attention on Wall Street. On February 2, Scotiabank analyst Patrick Colville downgraded the stock from Sector Outperform to Sector Perform with an $85 price target.
The firm sees Fortinet as a strong company, but believes that the optimism for 2026 appears overstated. It acknowledged that Fortinet is a strong and legendary company with a compelling offering in core secure networking.
However, it is still downgrading the name based on its latest quantitative analysis and recent CISO checks with mid/large-sized enterprises.
“We feel less optimistic about the name in 2026.”
Fortinet, Inc. (NASDAQ:FTNT), a cybersecurity company, provides enterprise-level next-generation firewalls and network security solutions, leveraging artificial intelligence across its cybersecurity products.
8. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 66
International Business Machines Corporation (NYSE:IBM) is one of the 10 AI Stocks Gaining Attention on Wall Street. On January 30, Bernstein SocGen Group analyst Mark C. Newman raised the price target on the stock to $330.00 (from $280.00) while maintaining a “Market Perform” rating. The firm has flagged IBM’s full valuation despite its Q4 beat due to tougher comps ahead and an AI-driven sector risk.
Bernstein noted how IBM beat consensus expectations on revenue, earnings per share, and free cash flow in its latest quarterly report. The company anticipates profit margin expansion of about one percentage point and free cash flow of estimated $15.7 billion for FY26.
Its revenue growth and margin improvement expectations align with its full-year guidance for the first quarter of 2026. Further, IBM anticipates the closing of its Confluent acquisition by mid-2026, resulting in an estimated $600 PTI dilution in the second half of 2026. The acquisition is likely to be accretive to adjusted EBITDA in FY27 and to free cash flow in FY28.
Bernstein noted that IBM’s valuation appears full, particularly due to IBM’s heavy exposure to software and consulting, both of which are vulnerable to AI-driven devaluation. Nevertheless, IBM’s stock has remained resilient.
“Our updated SOTP analysis implies that part of the long-term upside from IBM’s nascent Quantum business is already in the stock.”
International Business Machines Corporation (NYSE:IBM) is a multinational technology company and a pioneer in artificial intelligence, offering AI consulting services and a suite of AI software products.
