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.
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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.
8. Sportradar Group AG (NASDAQ:SRAD)
Sportradar Group AG (NASDAQ:SRAD) announced a multi-year partnership with NBC Sports Regional Sports Networks (RSNs) on February 9. The agreement is aimed at improving the NBA viewing experience by adding real-time broadcast technology to live game coverage. Under the agreement, NBC Sports Regional Networks will utilize Sportradar’s NBA Advanced Data and GameFrame during live NBA broadcasts in the 2025-26 and 2026-27 seasons. The partnership covers hundreds of NBA games across NBC Sports’ regional networks. It aims to provide more detailed and engaging coverage for fans in multiple NBA markets across the United States.
GameFrame is a major part of the partnership. It uses artificial intelligence to turn live NBA player-tracking data into on-screen graphics, shot charts, animated replays, and custom digital content. These tools help commentators describe outcomes, break down plays, and explain players’ positions as the game unfolds.
Brian Josephs, VP, The Americas, Sportradar Group AG (NASDAQ:SRAD), commented:
“This agreement builds upon our long-standing relationship with NBC and reflects how we continue to expand the ways we support their live sports coverage. As NBC continues to evolve how it serves fans across platforms, Sportradar is helping deliver the data-driven tools that bring greater clarity and context to live games, creating more engaging NBA viewing experiences for fans.”
Sportradar Group AG (NASDAQ:SRAD) operates as a provider of data services. The company offers its services to the media and sports betting industries across the Middle East, the United States, Africa, Switzerland, the Caribbean, the Asia Pacific, Europe, North America, and Latin America.
7. Shopify Inc. (NASDAQ:SHOP)
On February 16, Jefferies analyst Samad Samana reaffirmed a Hold rating on Shopify Inc. (NASDAQ:SHOP) while lowering the firm’s price target. The analyst cut the firm’s price target on the stock from $160 to $125. According to the analyst, the company delivered strong fourth-quarter results and provided encouraging guidance for the first quarter of 2026. Jefferies also adjusted its financial model to reflect its revised forecasts and the lower valuations currently seen across the software sector.
In its Q4 earnings report on February 11, Shopify Inc. (NASDAQ:SHOP) said that it was the first quarter ever with revenue over $3 billion. Revenue in North America grew 28%, helping the company capture more than 14% share of the U.S. e-commerce market. Offline channel revenue for the quarter reached $748 million, representing a 27% growth rate. Growth in its International merchant base was even stronger, with revenue increasing 36% YoY. Gross profit growth was 24% for the full-year, while it was 25% for Q4. Operating expenses for the quarter came in at $1 billion, equal to 29% of the revenue. The company generated $715 million in free cash flow during the quarter, about 19% of revenue. For the full year, free cash flow reached $2 billion. The company’s board also approved a share buyback program of up to $2 billion.
Shopify Inc. (NASDAQ:SHOP) operates as a commerce technology company. The company offers tools to run, start, market, and scale a business of any size across the United States, Canada, the Middle East, Europe, Latin America, Africa, and the Asia Pacific. It is also involved in the sale of themes and apps, advertising on the Shopify App Store, point-of-sale hardware, shipping labels through Shopify Shipping, and Shop Campaigns for buyer acquisitions.
6. Paylocity Holding Corporation (NASDAQ:PCTY)
Jared Levine from TD Cowen reaffirmed a Buy rating on Paylocity Holding Corporation (NASDAQ:PCTY) on February 5. However, he lowered the firm’s price target on the stock from $188 to $178. The firm’s revised price target suggests a further 74.5% upside from the current levels. According to the firm, the company’s second-quarter results were impressive. Q2 performance highlighted that the company’s low valuation and strong position in AI offer an attractive entry point for investors. The company continues to be TD Cowen’s top pick in HCM.
Paylocity Holding Corporation (NASDAQ:PCTY) reported its second-quarter fiscal 2026 results on February 5. For the second quarter, adjusted EBITDA reached $142.7 million with an adjusted EBITDA margin of 34.3%. This exceeded the high end of the company’s guidance by $7.2 million, leading to an increase in its margin outlook for FY 2026. GAAP gross profit came in at $282.1 million. Net income for the quarter was $50.2 million, while operating income totalled $70.4 million. Free cash flow margin was approximately 24% over the last 12 months. The company bought back about 690,000 shares for approximately $100 million during the quarter. Under its share repurchase program, it still has $400 million available.
Following the results, PCTY raised its fiscal 2026 revenue outlook. The company now expects total revenue in the range between $1.732 billion and $1.742 billion. Recurring and other revenue guidance was also raised and is projected to be $1.620 billion to $1.630 billion.
Paylocity Holding Corporation (NASDAQ:PCTY) offers cloud-based human capital management, spend management solutions, and payroll software. It serves the workforce across the United States. The company also provides client services, implementation & training, and tax and regulatory services.
5. Agilysys, Inc. (NASDAQ:AGYS)
Nehal Chokshi, an analyst at Northland Securities, maintained his Buy rating on Agilysys, Inc. (NASDAQ:AGYS) along with the price target of $155 on February 9. The firm’s price target offers an additional 115% upside from the current levels. This is also the highest analyst price target on Wall Street, as per 7 analysts covering the stock.
On February 2, Agilysys, Inc. (NASDAQ:AGYS) reported results for the twelve months ending December 31, 2025. The company posted $310.6 million in revenue and $61.0 million in adjusted EBITDA. Gross profit was recorded at $191.6 million. Recurring revenue accounted for 64% of total revenue, and subscription revenue accounted for 66% of that. Agilysys, Inc. (NASDAQ:AGYS) highlighted strong growth with total revenue up 29%. Subscription revenue rose 36% year-over-year, while adjusted EBITDA margin was 20%. During the period, 74 new customers were added. The company had earlier increased its full-year 2026 revenue guidance range from $308–$312 million to $315–$318 million in October 2025. In addition to the revenue outlook, it also raised its first-quarter FY 2026 subscription growth outlook. The revision reflects confidence in its solid financial position and growing hospitality software business.
Agilysys, Inc. (NASDAQ:AGYS) markets and develops software-enabled solutions and services. The company serves the hospitality industry across the Asia-Pacific, India, Europe, and North America. It also provides hospitality and leisure ecosystem solutions and inventory and procurement ecosystem solutions. Agilysys was incorporated in 1932 and is based in Alpharetta, Georgia.
4. Pegasystems Inc. (NASDAQ:PEGA)
J.P. Morgan analyst Alexei Gogolev reduced the firm’s price target on Pegasystems Inc. (NASDAQ:PEGA) from $74 to $64 on February 13. However, he reiterated his Buy rating on the stock. The firm’s price target implies a further 52.4% upside from the current levels.
In addition to J.P. Morgan, RBC Capital also lowered its price target on Pegasystems Inc. (NASDAQ:PEGA) on February 11. The firm reduced its price target on the stock from $80 to $65 while keeping an Outperform rating. The firm said that the company’s initial guidance for fiscal year 2026 is cautious. The company has the potential to beat these estimates throughout the year, backed by strong sales, increased cloud migration, new partner investments, and continued momentum for its Blueprint platform.
Pegasystems Inc. (NASDAQ:PEGA) announced its fourth-quarter earnings on February 11. As reported, Total ACV rose 17% as compared to the previous year, while Pega Cloud ACV grew 33% year-over-year. The company completed significant buybacks and dividend payments during the quarter and paid down a large portion of its debt. Free cash flow for the quarter reached $491 million, exceeding the guidance. For 2026, Pegasystems Inc. (NASDAQ:PEGA) expects total revenue of $2 billion and total ACV growth of 15%. The company is projected to generate $575 million in free cash flow during the year.
Pegasystems Inc. (NASDAQ:PEGA) hosts, develops, licenses, markets, and supports enterprise software. The company operates across the United Kingdom, the United States, Africa, the rest of the Americas, the Asia-Pacific, the rest of Europe, and the Middle East. It mainly serves the government, healthcare, financial services, manufacturing & high tech, communications & media, insurance, and consumer industries.
3. Tyler Technologies, Inc. (NYSE:TYL)
Tyler Technologies, Inc. (NYSE:TYL) received a Buy rating from D.A. Davidson analyst Peter Heckmann on February 17. He maintained his $460 price target for the stock. On February 13, Adam Hotchkiss of Goldman Sachs also reiterated his Buy rating on Tyler Technologies, Inc. (NYSE:TYL) while cutting the firm’s price target from $560 to $420. The price target revision came after the company reported its fourth-quarter results. According to the firm, the continued adoption of technology by state and local governments and a multi-year shift to the cloud support its long-term growth potential. However, the analyst believes that it will need to deliver consistent results over several quarters to win back investor confidence. The share price dropped about 15% as a result of fourth-quarter revenue and guidance that were below expectations.
As reported on February 12, Tyler Technologies, Inc. (NYSE:TYL) recorded total revenue of $575.2 million for the quarter. Total bookings during the quarter were $601 million, approximately the same as last year’s Q4. For the full year, total bookings rose 1.4%. Total annual recurring revenue grew by 10.9% to $2.06 billion. Non-GAAP operating margin was 24.1%, slightly lower than the previous year. However, for the full year, non-GAAP operating margin improved by 150 basis points, coming in at 26%. Free cash flow and cash flow from operations both hit record levels during the quarter. Free cash flow for the quarter was $236.9 million, while for the full year it was $620.8 million.
CFO Brian Miller commented on the guidance:
Our annual guidance for 2026 is as follows: we expect total revenues will be between $2.5 billion and $2.55 billion. The midpoint of our guidance implies growth of approximately 8.3%.
Tyler Technologies, Inc. (NYSE:TYL) operates as a provider of software and technology management solutions. It serves the public sector. The company operates through the Platform Technologies and Enterprise Software segments. It was incorporated in 1966 and is based in Plano, Texas.
2. Guidewire Software, Inc. (NYSE:GWRE)
On February 16, Rishi Jaluria of RBC Capital maintained a Buy rating on Guidewire Software, Inc. (NYSE:GWRE) and assigned a price target of $300. A week before that, on February 10, Goldman Sachs analyst Adam Hotchkiss reaffirmed a Buy rating on the stock, along with a price target of $275. The firm’s price target suggests an additional 125% upside from current levels.
In contrast to the above ratings, Wells Fargo lowered its price target on Guidewire Software, Inc. (NYSE:GWRE) from $250 to $210 on February 4. Analyst Michael Turrin reduced the firm’s price target on the stock while keeping a Buy rating. This is not the first time the firm has revised its view this year. Earlier, on January 8, Wells Fargo had already lowered its price target on Guidewire Software, Inc. (NYSE:GWRE) from $275 to $250 while discussing its broader 2026 outlook for software stocks. The latest price target revision on February 4 follows that earlier update.
Based in San Mateo, California, Guidewire Software, Inc. (NYSE:GWRE) offers a platform for property and casualty (P&C) insurers globally. The company provides Guidewire InsuranceSuite, including ClaimCenter, PolicyCenter, and BillingCenter applications. Moreover, it also offers Guidewire InsuranceNow, Guidewire Reinsurance Management, Guidewire Rating Management, Guidewire Client Data Management, Guidewire Product Content Management, and Guidewire Advanced Product Designer.
1. Monday.com Ltd (NASDAQ:MNDY)
On February 23, Jefferies assigned a Hold rating to Monday.com Ltd (NASDAQ:MNDY), downgrading from the prior Buy rating. The price target was also drastically reduced from $260 to $80. Jefferies sees the AI-induced risks continuing for application software stocks, with MNDY being one of the major companies affected. The analysts described the company’s prospects as ‘hazy’ in the small business and enterprise segments.
The company’s management sounded upbeat on the earnings call on February 10, however. The firm expects Q1 revenue to fall between $274 and $276 million, which translates to 26%-27% YoY growth. A healthy free cash flow of $300 million to $308 million is also expected in the full year. Some of the risks facing the company, apart from AI, include foreign exchange impact, elongated enterprise deal cycles, higher investments in infrastructure, and hiring more people for it.
Monday.com Ltd (NASDAQ:MNDY) is a developer of software applications operating in the US, Europe, Africa, and the Middle East, among other regions. Its clients include governments, educational institutions, and other businesses and organizations. The company is headquartered in Tel Aviv, Israel.
While we acknowledge the potential of MNDY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than MNDY and that has 100x upside potential, check out our report about the cheapest AI stock.
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