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.
9. Freshworks Inc. (NASDAQ:FRSH)
Sector/Industry: Technology (Software Application)
Share Price: $11.34
Potential Upside: 66.5%
Number of Hedge Fund Holders: 41
Freshworks Inc. (NASDAQ:FRSH) is one of the best software application stocks to buy according to Hedge Funds.
Ryan MacWilliams from Wells Fargo reaffirmed his Equal Weight rating on Freshworks Inc. (NASDAQ:FRSH). The analyst set a target price of $13 on January 9, implying an upside of almost 15% for investors.
The analyst highlighted recent price hikes to the company’s Freshdesk plans, which led to double-digit percentage price increments across all tiers. In line with extra features in the Freshdesk product line, these price revisions could generate 3% additional growth for the business in FY26.
On December 15, Needham also maintained its bullish sentiment towards Freshworks Inc. (NASDAQ:FRSH). The firm assigned a Buy rating with a target price of $25, leading to a 121% upside potential.
Needham noted a strong demand during 2025 for their IT service management platform, Freshservice. The platform is being highly favored given its user-friendly features, competitive pricing, and strong adoption in up-market segments.
On the other hand, there was a more modest but stable demand for customer service software, Freshdesk. As per Needham’s analysis, early adoption of Freddy AI for both platforms will offer automation benefits as well as a competitive edge.
Freshworks Inc. (NASDAQ:FRSH) is a software developer that offers cloud-based SaaS solutions worldwide. With a focus on user-friendly AI-enabled solutions for customers, they deliver IT service management, customer experience, and sales & marketing. They cater to diverse organizational clients ranging from early-stage companies to large enterprises.
8. Tyler Technologies (NYSE:TYL)
Sector/Industry: Technology (Software Application)
Share Price: $446.15
Potential Upside: 38.4%
Number of Hedge Fund Holders: 44
Tyler Technologies (NYSE:TYL) is one of the best software application stocks to buy according to Hedge Funds.
On January 13, Goldman Sachs analyst Adam Hotchkiss maintained a Buy rating for Tyler Technologies (NYSE:TYL). His forecasts lead to an upside of 26% based on a price target of $560.
Hotchkiss acknowledged the company’s portfolio as a hedge against the possibility of underperformance in certain sub-verticals. He views the business to be well-positioned for technology adoption, both at the local and state levels. He also forecasted compound annual growth in subscription revenue in the mid-teens through 2030, given their multi-year cloud transition. With ongoing cloud conversion momentum expected to persist, the business seems to be on track to surpass management’s 2030 operational targets.
J. Parker Lane from Stifel Nicolaus initiated coverage on Tyler Technologies (NYSE:TYL), on January 8. He assigned a Buy rating with a price target of $550, resulting in an upside of 23%.
Lane attributed his views to the company’s commitment towards the public sector through software and payment solutions, which have made it a key stakeholder in the digitalization efforts of government sector entities. Such an impressive track record has yielded a strong demand from government agencies that are aiming for cybersecurity protection and operational efficiencies.
Tyler Technologies (NYSE:TYL) provides integrated solutions for the public sector through its two segments, i.e., Enterprise Software and Platform Technologies. They offer cloud-based transformative technology solutions such as public safety, payments, cybersecurity, customized employee training, and other digital solutions. Their software solutions allow for enhanced public service delivery through AI-enabled tools.
7. Paylocity Holding Corporation (NASDAQ:PCTY)
Sector/Industry: Technology (Software Application)
Share Price: $141.65
Potential Upside: 39.1%
Number of Hedge Fund Holders: 44
Paylocity Holding Corporation (NASDAQ:PCTY) is one of the best software application stocks to buy according to Hedge Funds.
On January 8, TD Cowen analyst Jared Levine reaffirmed his optimism for Paylocity Holding Corporation (NASDAQ:PCTY). He assigned a Buy rating to the stock and, in the process, raised his price target from $184 to $188. Levine’s upward revision now leads to an upside potential of almost 33%.
Levine’s rating is based on revised forecasts before Paylocity Holding Corporation’s (NASDAQ:PCTY) second-quarter results announcements. These forecasts also incorporate recent expectations regarding the Fed Funds rate.
Back on December 23, Steve Enders from Citi also reiterated his bullish stance on Paylocity Holding Corporation (NASDAQ:PCTY), giving a Buy call on the stock. Enders also raised his price target from $175 to $179, which now yields a 26% upside potential for investors.
Enders’ upward adjustment to the price target is part of Citi’s broader revisions to software application stocks, following their meetings with company managements. Companies within this segment are currently subject to stable yet uncertain demand dynamics. However, the reopening of the U.S. government has provided some relief.
Paylocity Holding Corporation (NASDAQ:PCTY) delivers cloud-based solutions for human capital, payroll, and spend management functions. With a focus on medium-sized organizations, they enable efficient business operations through tax services, payroll systems, workforce management, compliance tracking, and more.
6. Klaviyo Inc. (NYSE:KVYO)
Sector/Industry: Technology (Software Application)
Share Price: $25.60
Potential Upside: 64.6%
Number of Hedge Fund Holders: 48
Klaviyo Inc. (NYSE:KVYO) is one of the best software application stocks to buy according to Hedge Funds.
On January 15, Elizabeth Porter from Morgan Stanley maintained an Overweight rating on Klaviyo Inc. (NYSE:KVYO). She revised her estimated target price from $46 to $42.
Porter believes that SaaS application companies delivered lower returns in 2025 relative to the technology sector and the broader software group. This was due to continued fears of AI-related risks for such businesses. However, she feels that these risk assessments seemed to have been exaggerated initially, and there is more optimism around SaaS companies going into 2026. Despite a downward revision of the target price, Porter’s estimates still yield an impressive 64% upside for the stock.
On January 12, Cantor Fitzgerald also maintained an Overweight rating for Klaviyo Inc. (NYSE:KVYO), with a $40 price target. The firm negated speculations around the “AI taking over the Software World thesis.” The firm noticed a critical factor that offers resilience to software solution providers in general. It sees enterprises being reluctant to move away from existing software platforms, given the complexity of their processes and workflows.
The firm also expressed confidence in the company’s market position following the launch of Marketing Agent and Customer Agent products. These developments will push topline figures beyond the $1 billion mark.
Klaviyo Inc. (NYSE:KVYO) delivers an AI-first SaaS platform for B2C clients that helps in their customer relationship management functions. The platform enables data storage, campaigns, marketing automation, and analytics. It also allows for customer service integration and omni-channel marketing tools such as emails, SMS, and WhatsApp marketing.
5. Duolingo Inc. (NASDAQ:DUOL)
Sector/Industry: Technology (Software Application)
Share Price: $154.42
Potential Upside: 70.1%
Number of Hedge Fund Holders: 50
Duolingo Inc. (NASDAQ:DUOL) is one of the best software application stocks to buy according to Hedge Funds.
On January 13, Nathan Feather from Morgan Stanley reiterated an Overweight rating on Duolingo Inc. (NASDAQ:DUOL) shares. Although he lowered his price target from $300 to $275, his estimates still imply 78% upside.
Feather’s rating is part of Morgan Stanley’s broader view on the internet sector for 2026, which the firm believes will be “thematically similar” to 2025. Leveraging GenAI or GPU technologies will prove to be a critical factor. The firm believes that companies embracing these developments in pursuit of higher ROIC will garner investor attention.
KeyBanc analyst Justin Patterson maintained his Sector Weight rating on Duolingo Inc. (NASDAQ:DUOL), on January 13. His rating came at the back of the company’s announcement relating to the CFO change. The company anticipates a smooth transition, given the fact that the incoming CFO, Gillian Munson, has been a part of the board for many years.
Duolingo Inc. (NASDAQ:DUOL) operates a mobile learning platform, offering programs in 40 different languages. Their product development approach is heavily focused on AI capabilities, which helps them deliver a highly gamified and engaging learning experience. They cover a diverse range of areas, including music, mathematics, languages, and assessments.
4. Elastic N.V. (NYSE:ESTC)
Sector/Industry: Technology (Software Application)
Share Price: $72.81
Potential Upside: 38.9%
Number of Hedge Fund Holders: 52
Elastic N.V. (NYSE:ESTC) is one of the best software application stocks to buy according to Hedge Funds.
At the close of play on January 15, broader sentiment around Elastic N.V. (NYSE:ESTC) remains moderately bullish. The stock has received coverage from a total of 26 analysts, of which 16 have assigned Buy ratings. There were 10 Hold calls, and with no Sell rating, it currently offers an upside potential of 39%. This is based on a 1-year median price target of $101.14 for the stock.
On January 5, Matthew Hedberg from RBC Capital maintained his optimistic outlook on Elastic N.V. (NYSE:ESTC). He kept an Outperform rating on the stock but lowered his estimated price target from $115 to $95. Even after this downward revision, his forecasts yield an upside potential of almost 31%.
Hedberg’s rating is part of RBC Capital’s 2026 outlook, according to which AI adoption will be a major catalyst. This will benefit certain businesses that are well-positioned for these developments. The firm also highlighted that peers who aren’t prepared for these disruptions will struggle in such an environment that is shaped by the “AI is the death of software” narrative.
Elastic N.V. (NYSE:ESTC) provides a search artificial intelligence platform that offers self-managed and cloud-hosted solutions within and outside the United States. This platform operates in hybrid, public, private, and multi-cloud environments, which can source data from different sources. The platform also allows users to perform visualizations and analytics on fetched data.
3. monday.com Ltd. (NASDAQ:MNDY)
Sector/Industry: Technology (Software Application)
Share Price: $132.81
Potential Upside: 77.1%
Number of Hedge Fund Holders: 55
monday.com Ltd. (NASDAQ:MNDY) is one of the best software application stocks to buy according to Hedge Funds.
On January 15, Jefferies analyst Brent Thill maintained his Buy rating for monday.com Ltd. (NASDAQ:MNDY). He forecasted a price target of $260 for the stock, which results in an upside of 96% from the prevailing level.
Thill noted a 41% dip in share price for monday.com Ltd. (NASDAQ:MNDY), over the last 1 year. The stock currently trades at an EV/Sales multiple of 3.5x, which appears to be reasonably cheap. Beyond these valuation figures, what also makes the stock attractive are growth and innovation prospects, strong liquidity, 27% FCF margin, and solid cash reserves that make up for 25% of the company’s market capitalization.
On December 23, Citi analyst Steve Enders also reaffirmed his Buy rating for monday.com Ltd. (NASDAQ:MNDY). Although he lowered his price target estimates from $319 to $293, it still gives investors a lucrative upside potential of 121%.
Enders’ rating and the downward revision of the target price are part of Citi’s broader outlook on software application stocks, following their meetings with company managements. According to the firm, many companies are presently witnessing stable yet uncertain demand trends. But there has been some relief for businesses after the reopening of the U.S. government.
Monday.com Ltd. (NASDAQ:MNDY) is a software application developer that operates a cloud-based visual Work Operating System. This platform contains modular building blocks that are used for creating software applications and scaling workflows for enterprises. It delivers customized work management tools for efficient management of processes and projects.
2. HubSpot, Inc. (NYSE:HUBS)
Sector/Industry: Technology (Software Application)
Share Price: $329.24
Potential Upside: 75.5%
Number of Hedge Fund Holders: 63
HubSpot, Inc. (NYSE:HUBS) is one of the best software application stocks to buy according to Hedge Funds.
Raymond James maintained its bullish views on HubSpot, Inc. (NYSE:HUBS), assigning an Outperform rating to the stock on January 6. The firm anticipated an upside potential of almost 60% based on a price target of $525.
Rating from Raymond James came after a webinar with an elite HubSpot partner, who highlighted new deals with the company in line with their own fourth quarter 2025 plans. The partner spoke about a few deals that were initially planned for the fourth quarter, now expected to be finalized in the first quarter of 2026. This adds onto an already strong deal pipeline for 2026, although concerns remain around some AI-related risks and signs of growth deceleration.
On January 12, Tyler Radke from Citi also reaffirmed his Buy rating for HubSpot, Inc. (NYSE:HUBS). He also raised his target price estimates from $658 to $660, which now results in an upside of almost 101%. Moreover, Radke opened a 30-day upside catalyst watch on the stock.
HubSpot, Inc. (NYSE:HUBS) is a leading cloud-based customer relationship management (CRM) platform provider for businesses. It offers various platforms, including Marketing Hub, Sales Hub, Operations Hub, Service Hub, and Commerce Hub. All these distinct platforms provide a wide variety of tools that enable unique business functions. The company serves clients across the Americas, Asia Pacific, and Europe.
1. Guidewire Software (NYSE:GWRE)
Sector/Industry: Technology (Software Application)
Share Price: $166.09
Potential Upside: 68.3%
Number of Hedge Fund Holders: 72
Guidewire Software (NYSE:GWRE) is one of the best software application stocks to buy according to Hedge Funds.
On January 9, Rishi Jaluria from RBC Capital maintained his Outperform rating on Guidewire Software (NYSE:GWRE). He estimated a price target of $300, which leads to almost 81% upside potential from the current level.
Jaluria’s rating came at the back of the company’s recent announcement of a new $500 million share buyback program, which has been authorized with immediate effect. This follows the successful completion of a previous buyback program. Jaluria considers this move to enhance the company’s capital return discipline, backed by an impressive balance sheet and strong cash generation ability.
On January 9, Citizens also reaffirmed its favorable view of Guidewire Software (NYSE:GWRE), assigning a Market Outperform rating to the stock. The firm also estimated an 81% upside based on a $300 price target.
The firm reflected on broader optimism surrounding its latest buyback program. Besides that, it noted the underperformance of Guidewire Software (NYSE:GWRE) shares relative to the Russell 3000 index over the last twelve months. This trend continued during the start of 2026, and currently the stock trades at a 12% discount to the index.
Guidewire Software (NYSE:GWRE) offers a cloud-based platform for property and casualty (P&C) insurers around the globe. Through the platform, it provides several applications, such as PolicyCenter, ClaimCenter, and BillingCenter, that facilitate core operations for P&C insurance companies. Other offerings include Guidewire Rating Management, Guidewire InsuranceNow, Guidewire Reinsurance Management, Guidewire Client Data Management, and more.
While we acknowledge the potential of GWRE 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 GWRE and that has 100x upside potential, check out our report about this cheapest AI stock.
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