Software Stocks have taken a beating since the launch of Claude Opus 4.6 on February 5. The writing was on the wall for software stocks ever since the launch of Claude Code in February last year.

Dan Skelly, head of Market Research and Strategy at Morgan Stanley Wealth Management, discussed this development in a Bloomberg Podcasts segment. Skelly admitted that it was clear to many that software was going to be disrupted:

“We’ve known software is going to be disrupted for the last 2 years, so that’s not the big surprise.”

Skelly rightly points out that some of the software stocks that have taken a beating were some of the early adopters of AI. But when asked about software being under some risk, he responded:

“I think it’s one of these many examples of dissonance at the moment. On the one hand, the market is fearful over AI spending. On the other hand the market is saying software is going to be disrupted… Not all software is created equal, when I look at the varying types of software, some of these companies are actually partnered with  the AI model makers today.”

We decided to look at the 10 best beaten-down software stocks with the highest upside potential in order to find out which of these software stocks offered an attractive risk-reward proposition.

Our Methodology

To compile our list of 10 best beaten-down software stocks with the highest upside potential, we looked at software stocks with a market cap of at least $2 billion, and then filtered stocks that had fallen by more than 30% so far this year. We evaluated their upside potential using CNN’s analyst rating compilation and ranked the stocks in ascending order of their upside potential.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).

Note: All share price data in the article is as per market close on February 24.

10. BlackLine, Inc. (NASDAQ:BL)

On February 12, Morgan Stanley analyst Chris Quintero reduced the firm’s price target on BlackLine, Inc. (NASDAQ:BL) from $73 to $68 while reaffirming an Overweight rating. The firm revised its price target following the company’s fourth-quarter earnings report.

BlackLine, Inc. (NASDAQ:BL) reported its Q4 earnings on February 11. Total revenue for the quarter reached $183 million. The company reported $702 million in annual recurring revenue and $1.1 billion in total remaining performance obligations (RPO).  During the quarter, billings rose more than 9%. Non-GAAP net income came in at $45 million, demonstrating a non-GAAP net income margin of 25%. The company reported $27 million in operating cash flow and $20 million in free cash flow for the quarter. Platform pricing ARR grew 4% sequentially and represented 11% of eligible ARR.

During the quarter, BlackLine, Inc. (NASDAQ:BL) bought back $34 million in shares, bringing total share buybacks for the year to $235 million. The company served 4,394 customers during the quarter. CFO Patrick Villanova commented on the company’s Q1 FY 2026 outlook:

“For the first quarter of 2026, we expect total GAAP revenue to be in the range of $180 million to $182 million, representing approximately 8% to 9% growth. For the full year 2026, we expect total GAAP revenue to be in the range of $764 million to $768 million, representing approximately 9.1% to 9.6% growth. We expect non-GAAP operating margin to be in the range of 23.7% to 24.3%.”

BlackLine, Inc. (NASDAQ:BL) operates as a provider of cloud-based solutions to streamline and automate accounting and finance operations. The company provides financial close and consolidation solutions, transaction matching, task management, and financial reporting analytics. It was founded in 2001 and is based in Woodland Hills, California.

9. Commvault Systems, Inc. (NASDAQ:CVLT)

According to CNN’s analyst ratings compilation, Commvault Systems, Inc. (NASDAQ:CVLT) has a median price target of $143, based on 15 analysts covering the stock. This median price target reflects an additional upside of 64.59% from the current levels. The stock still offers 14% upside from the lowest Wall Street price target of $100.

Taking a more conservative view than most analysts, RBC Capital lowered its price target on Commvault Systems, Inc. (NASDAQ:CVLT) from $167 to $100 on January 27. However, the firm maintained its Sector Perform rating on the stock. The price target adjustment came after the company reported its third-quarter results. According to the analyst, the quarter delivered mixed results, but the share price’s fall of more than 30% appeared excessive.

The firm highlighted in a research note that investors were mostly worried about the outlook, net new annual recurring revenue, the net retention rate, and possible broader implications. RBC Capital said that, similar to the last quarter, these issues were complex and detailed but not major problems. The firm believes that the investors would expect to see steady performance before confidence in the company recovers.

Commvault Systems, Inc. (NASDAQ:CVLT) offers a cyber resilience platform. The company’s platform recovers and protects data and cloud-native applications. It provides Operational Recovery, autonomous recovery, Cyber Recovery, and Commvault Cloud’s Cleanroom Recovery. Commvault was founded in 1996 and is based in Tinton Falls, New Jersey.