In this article, we look at the 10 Best Underperforming Tech Stocks to Buy for a Turnaround.
The 2026 tech trade has not punished every corner of the sector equally. AI infrastructure names have continued to attract capital, but large parts of software, fintech, cybersecurity, and tech-enabled services have spent much of the year under pressure as investors reassess growth expectations, pricing power, and the risk that generative AI could weaken legacy software moats. Reuters reported in February that software stocks had come under pressure as AI shifted from being seen mainly as a tailwind to being viewed as a potential disruptor for parts of the sector.
That reset has also created a more selective turnaround setup. The bear case is no longer just about valuation compression. Investors are asking which companies can defend their customer relationships, convert AI into revenue, and keep margins intact as enterprise software budgets become more demanding. Morningstar argued in late March that, after months of poor performance, software offered some of the biggest upside within technology, while long-term drivers such as cloud computing, AI, and semiconductor demand remained intact.
For this article, we focused on underperforming technology stocks with credible recovery potential. The result is a list of beaten-down technology stocks where expectations have already reset, but where company-specific fundamentals, recent developments, or analyst sentiment still support a credible recovery case.
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Methodology
To build our list of the 10 Best Underperforming Tech Stocks to Buy for a Turnaround, we screened technology stocks that had meaningfully lagged the broader market or traded well below their recent highs, while still having credible recovery catalysts such as improving fundamentals, analyst upside, AI-related product shifts, or resilient core demand. We then ranked the stocks in descending order of short interest as a percentage of float.
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 498.7% since May 2014, beating its benchmark by 303 percentage points (see more details here).
10. Zscaler, Inc. (NASDAQ:ZS)
Short Percentage of Float: 7.64%
Zscaler, Inc. (NASDAQ:ZS) is one of the best underperforming tech stocks to buy for a turnaround. The stock remains deep in recovery territory, showing a 52-week high of $336.99 and a 52-week low of $114.63, while shares traded at $172.11 on May 18. MarketBeat showed a Moderate Buy consensus rating and an average price target of $261.26, implying nearly 50% upside.
The latest analyst signal was mixed but still supportive. On May 18, Rosenblatt cut its price target on Zscaler to $223 from $250, but kept a Buy rating, with the new target still implying about 29.6% upside from the stock’s then-current price. That makes the setup less of a blind bullish call and more of a valuation-reset turnaround case.
The product story is also moving in the right direction. On April 29, Zscaler introduced the next phase of its Zero Trust Browser, aimed at securing browsing and application access as enterprises face risks from malicious extensions, phishing, unmanaged devices, and accidental GenAI-related data exposure. Earlier, on April 21, Zscaler won the 2026 Google Cloud Partner of the Year Award for Security in the Application category, with the company highlighting integrations across Google workloads, Workspace DLP, Google SecOps, and Vertex AI.
Zscaler, Inc. (NASDAQ:ZS) is a global zero-trust security company whose platform helps organizations secure users, branches, applications, data, and devices.
9. Fair Isaac Corporation (NYSE:FICO)
Short Percentage of Float: 6.95%
Fair Isaac Corporation (NYSE:FICO) is one of the best underperforming tech stocks to buy for a turnaround. FICO has been hit hard by worries that its credit-scoring moat could weaken as the mortgage market opens further to competing models. On April 22, Reuters reported that Fair Isaac shares fell 12% after Fannie Mae and Freddie Mac said they would begin accepting mortgages assessed with VantageScore 4.0, a rival model backed by Equifax, Experian, and TransUnion. The pressure has been severe enough that FICO was still roughly 50% below its 52-week high in mid-May.
The turnaround case, however, received fresh support on May 18, when FICO said an independent Milliman analysis found that FICO Score 10T was more predictive than VantageScore 4.0 for first-time homebuyer mortgage risk. The study covered nearly 20 million mortgages from 2011 through 2023, and FICO said nearly 60 lenders had already signed up for its free-access program to test FICO Score 10T alongside Classic FICO.
The company also gave investors a stronger fundamental backdrop on April 28, reporting fiscal second-quarter revenue of $691.7 million, up 39% year over year. Scores revenue rose 60%, software revenue increased 7%, and FICO raised its fiscal 2026 revenue guidance to $2.45 billion from $2.35 billion.
Fair Isaac Corporation (NYSE:FICO) provides analytics, decision-management software, and credit-scoring products used by lenders, insurers, telecommunications firms, retailers, and other businesses. Its FICO Score remains a major U.S. consumer credit-risk benchmark.
