In pursuit of high-growth prospects, recurring revenue, and innovation, investors often turn to software application stocks. What also makes these stocks stand out is their ability to keep up with secular trends in AI, cloud, and digital transformation.
AI-linked disruptions are reshaping the way technology businesses conduct their operations, which puts some companies at an advantage at the expense of others. Accelerating innovation now demands rapid adoption from companies to sustain themselves in such a competitive environment. On December 10, Deloitte published its “Tech Trends 2026” report, shedding light on how AI evolution is reshaping technology companies. The report highlighted that instead of executing drastic changes to underlying operating models, business leaders are now more focused on orchestrating human-agent teams. This helps organizations become more efficient, leaner, and innovative.
On January 5, accounting firm RSM International also emphasized the need for IT businesses to maintain an efficient technology stack in order to thrive. The firm is of the view that to overcome operational challenges and inefficiencies, there has to be a shift away from obsolete technologies and undocumented processes. Moreover, IT firms should be highly strategic in extending their resources, as cash outlays on misalignment technologies could result in a catastrophe.
Keeping these factors in mind, one can say that the current landscape is evolving in ways that make it even more challenging for investors to choose their winners. However, a thorough due diligence on business fundamentals can lead to some highly lucrative opportunities as well.
With that background, let’s explore our 10 Best Software Application Stocks to Buy According to Hedge Funds.
Our Methodology
To identify relevant stocks for this article, we began by screening U.S.-listed pure play software application companies with market capitalizations above $2 billion. We then added a filter to include companies with share prices above $5, in order to avoid penny stocks. Also, we only shortlisted stocks with at least 30% upside potential according to TipRanks consensus.
In the final part of the screening, we identified the number of hedge funds that held positions in these stocks as of the end of the third quarter of 2025. Finally, we selected 10 stocks with the highest number of hedge funds holding stakes and ranked them in ascending order.
Why are we interested in the stocks that hedge funds pile into? 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).
10. AppFolio Inc. (NASDAQ:APPF)
Sector/Industry: Technology (Software Application)
Share Price: $219.67
Potential Upside: 40.5%
Number of Hedge Fund Holders: 40
AppFolio Inc. (NASDAQ:APPF) is one of the best software application stocks to buy according to Hedge Funds.
On January 15, D.A. Davidson analyst Clark Wright reaffirmed his bullish views on AppFolio Inc. (NASDAQ:APPF), maintaining a Buy rating on the stock. He estimated a price target of $325, implying an upside potential of 48%.
Wright’s stance follows the announcement of the Bilt 2.0 Credit Cards Program, which offers a revised reward system to cardholders and carries potential churn risk. The analyst believes that this would create a competitive opportunity for AppFolio Inc. (NASDAQ:APPF) to design its own offering that could be a suitable alternative in the market. Wright’s target price represents a forward price-to-free cash flow multiple of around 45x, but he sees continued strength in business fundamentals to support his rating.
On December 16, KeyBanc also maintained an Overweight rating on AppFolio Inc. (NASDAQ:APPF). The firm forecasted a price target of $270, which leads to an upside of 23%. KeyBanc’s rating is also backed by its strong confidence in business fundamentals, characterized by accelerating revenues and an overall compelling growth story.
AppFolio Inc. (NASDAQ:APPF) offers a cloud-based SaaS platform for the real estate industry, which helps users to streamline their property management operations. Their proprietary platform delivers agentic AI solutions for automating workflows, including property maintenance, leasing, managing business finances, and data analysis.
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