In this article, we highlight the best software infrastructure stocks to buy according to hedge funds.
An estimated $45 trillion opportunity may emerge in the software application layer as AI infrastructure spending moves up the stack, according to Byron Dieter, Partner at Bessemer Venture Partners. Dieter joined CNBC on December 29, 2025, to discuss his outlook for 2026. He compared the current AI cycle to the early days of cloud computing, where spending first flowed into data centers, compute, and core infrastructure before moving to the software applications layer.
As data center investment accelerates, with billions already pouring in, Dieter estimates a 9x multiplier to gauge the implied enterprise value of software, given that software companies are the downstream beneficiaries of data center spending. On being asked about the software companies that have underperformed in 2025 and the “AI versus Software Trade”, Dieter argued that while many traditional software and SaaS stocks have struggled recently, he does not believe they are obsolete. He further said,
“There’s going to be a separation there. Who are the beneficiaries of AI that are going to lead the next cycle versus those that aren’t going to make the transition? And so, if you look at a ServiceNow or Aviva, I think those are names that are really interesting to watch, to see how they incorporate AI. And I think that there’s a little bit of value left there that they’re under their peer group. You look at some companies like Cloudflare and Applovin, even Snowflake, and at their current values, they’re the high fliers in this kind of genuine ecosystem.”
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Supporting this view in a recent CNBC interview, George Kurtz, Founder and CEO of CrowdStrike, pushed back against the idea that AI will replace software altogether. Addressing the “AI is killing software” narrative, Kurtz dismissed the idea, arguing that software remains essential to securing AI systems. He argued,
“I think you need software in order to be able to protect AI, and they are interrelated. It’s not like you just have one without the other. So, for me, I don’t really buy into that narrative. I think it’s only going to help companies like ours, we are AI, but we are also a SaaS company. The way we deliver security and AI, protection is through our software. So, I think you have to have both.”
With that broader software and software infrastructure backdrop in mind, let’s explore the best software infrastructure stocks to buy according to hedge funds.
Our Methodology
To identify stocks for this article, we began by screening U.S.-listed software infrastructure companies with market capitalizations over $2 billion whose core business is foundational infrastructure software platforms. We then used Q3 2025 data from Insider Monkey’s database to determine hedge fund ownership and narrowed the list to the 12 most widely held names. Finally, the stocks were ranked in ascending order by the number of hedge funds holding positions.
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).
Note: All pricing data is as of market close on January 9, 2025.
12. F5 Inc. (NASDAQ:FFIV)
Market Cap: $15.6 Billion
Number of Hedge Fund Holders: 40
F5 Inc. (NASDAQ:FFIV) is among the best software infrastructure stocks to buy according to hedge funds. On January 5, RBC Capital Markets upgraded F5 to Outperform from Sector Perform and raised its price target to $325 from $315, implying a further 27% upside potential.
This upgrade came after substantial erosion in the stock’s value over the last few months following a security incident in October. According to RBC’s analysis, the financial impact of the incident for the company will be lower than initially estimated. Moreover, the firm also believes that consensus now factors in the headwinds, which reduces downside uncertainty around the near-term execution.
For context, F5 Inc. (NASDAQ:FFIV) disclosed a severe, long-term security breach on October 15, 2025, raising serious concerns about the risk to critical infrastructure. The breach was first detected in August 2025 and was primarily related to the stealing of source code and internal data associated with BIG-IP products. While the company has been taking steps to mitigate risks and rebuild trust, the share price has declined by up to 35% since the incident became public.
As of the close of January 5, F5 Inc.’s (NASDAQ:FFIV) stock is down approximately 25% since mid-October, and RBC views this correction as a favourable entry opportunity.
Apart from this incident-related concern, RBC highlighted several medium-term growth drivers that could support a re-rating. These include potential tailwinds from cloud repatriation, early monetization opportunities from AI-driven workloads, and F5’s continued emphasis on security-oriented solutions. The firm also pointed to increased private data center investment as a favorable demand driver.
F5 Inc. (NASDAQ:FFIV) provides core application delivery and security infrastructure through its Application Delivery and Security Platform (ADSP). The company enables the delivery and security of applications and APIs across on-premises, edge, and hybrid and multi-cloud environments.
11. Nutanix Inc. (NASDAQ:NTNX)
Market Cap: $14.4 Billion
Number of Hedge Fund Holders: 47
Nutanix Inc. (NASDAQ:NTNX) is among the best software infrastructure stocks to buy according to hedge funds. Earlier this week, RBC Capital lowered its price target on Nutanix (NASDAQ:NTNX) to $65 from $74. While the exact drivers of the lower price target are not known to us at this time, the revision appears to be driven by near-term momentum rather than any shift in underlying long-term conviction, as the firm has maintained its Outperform rating on the stock.
RBC expects 2026 to be a year where clear benefits will be visible for software companies that are structurally positioned to benefit from enterprise AI adoption. On the other hand, those companies that remain exposed to the “AI is the death of software” narrative are expected to lag. The RBC analyst acknowledges that management teams across the sector are entering 2026 with conservative guidance. At the same time, he noted that enterprise spending trends appear to be stabilizing, and GenAI-driven innovation is driving improvements across many areas.
Notably, in an early December report, RBC Capital had noted an increase in merger & acquisition (M&A) activity with software deal volume “up well over 50%” year-to-date compared to last year. Among a list of twenty potential takeover targets, he named Nutanix Inc. (NASDAQ:NTNX) a leading candidate in the infrastructure, security, and analytics space.
Nutanix Inc. (NASDAQ:NTNX) hybrid multi-cloud computing company that offers a single platform for running applications and managing data across clouds.
10. Twilio Inc. (NYSE:TWLO)
Market Cap: $20.2 Billion
Number of Hedge Fund Holders: 55
Twilio Inc. (NYSE:TWLO) is among the best software infrastructure stocks to buy according to hedge funds. On January 5, Piper Sandler downgraded Twilio Inc. (NYSE:TWLO) to Neutral from Overweight while modestly raising its price target to $148 from $145.
The primary reason for the downgrade was the firm’s belief that Twilio’s recent growth re-acceleration narrative is likely to moderate later in 2026. It also sees limited scope for further upside revisions to free cash flow estimates. Piper Sandler believes the company has already met its previously targeted capital-return expectations and now trades at a “relatively fair valuation”.
The firm, however, maintains a constructive view of Twilio and regards it as its preferred name, given its strategic positioning in the communications software landscape, characterizing the company as the “best house in this neighbourhood.” Despite a more cautious rating stance, the firm highlighted Voice AI infrastructure as a small but rapidly growing segment of the business that could continue to drive growth.
Piper Sandler indicated it could turn more positive on the stock at a lower share price, with upcoming fourth-quarter results and initial 2026 guidance representing the next potential catalysts for reassessing the investment case.
Analysts from RBC Capital and Citizens JMP also raised their price targets on January 5 and December 30, respectively. Citizens JMP Securities analyst Patrick Walravens, who rates the stock an Outperform, raised the price target to $185, shy of the consensus high of $200, citing strong trends in the AI voice business.
Twilio Inc. (NYSE:TWLO) is a customer engagement platform that provides developers with tools to build, scale, and deploy real-time communications within software applications.
9. Okta Inc. (NASDAQ:OKTA)
Market Cap: $16.3 Billion
Number of Hedge Fund Holders: 55
Okta Inc. (NASDAQ:OKTA) is among the best software infrastructure stocks to buy according to hedge funds. While Cantor Fitzgerald analyst Jonathan Ruykhaver has been bullish on Okta since initiating coverage at the end of March 2025, he characterized the stock as a “contrarian value play” in his latest update early this week. He also reiterated his Overweight rating and $115 price target.
As his case for Okta Inc. (NASDAQ:OKTA) as a value play, Ruykhaver highlighted the stock’s steep valuation discount, with a price-to-FY 27 sales multiple of 4.4x, compared with peers’ average of 9.8x. He sees this discount as unwarranted, given the company’s strong execution, increased product breadth, and overall robust fundamentals. The analyst compared the bulls and bears cases to position the stock. For bulls, he argued:
Bulls point to Okta’s improving execution and the increasing strategic importance of identity as a control plane.” He added, “With identity now implicated in 80-90% of breaches, investors see Okta benefiting from the secular shift toward independent identity platforms and from NRR moving toward 110%+ over time.
For the bear case, he argued:
Bears focus on competitive dynamics and the risk that Okta’s expansion into adjacent identity categories may face strong pushback from incumbents like CyberArk, Microsoft, and SailPoint. Some view the ramp in Identity Governance and Privileged Access as promising but unproven at scale, with the products immature relative to best of breed.
However, the analyst noted that the rise of AI agents is making identity a more critical part of security, which supports his favorable view on the stock. He further argued:
We see identity becoming increasingly crucial to the security stack as AI agents proliferate. Early engagement from more than 100 customers across Okta for AI Agents and Auth0 for AI Agents supports the view that agent security could become a meaningful new TAM. Combined with improving execution, a strengthening product portfolio, and a discounted valuation, we see Okta as due for a re-rating as the growth story plays out.
Okta Inc. (NASDAQ:OKTA) is a cloud-based identity and access management company. It enables organizations to securely connect employees, customers, and partners to applications and systems.
8. Cloudflare Inc. (NYSE:NET)
Market Cap: $64.0 Billion
Number of Hedge Fund Holders: 63
Cloudflare Inc. (NYSE:NET) is among the best software infrastructure stocks to buy according to hedge funds. In a mid-December report, Stifel reiterated its positive view on Cloudflare Inc. (NYSE:NET) amid AI-driven security requirements becoming more central to enterprise risk management.
The firm highlighted that organizations are expanding the usage of generative and agentic AI. This expansion would mean cybersecurity teams will increasingly focus on controlling how AI is accessed and used internally, particularly to mitigate risks of unauthorized access, data leakage, and compromised AI outputs. This will, in turn, increase the demand for Identity, Data, Cloud, and Zero Trust Security solutions. Stifel’s analyst believes that Buy-rated Cloudflare Inc. (NYSE:NET) will be a beneficiary of these trends within its coverage universe.
Cloudflare Inc. (NYSE:NET) stock has performed strongly in 2025, delivering more than 80% returns as of January 7. Despite that strong performance, analyst consensus still indicates a 28% upside, with nearly 60% of analysts covering it assigning it a Buy or equivalent rating.
However, current valuation is a concern for some analysts, including those at Piper Sandler, who reiterated their Neutral rating on the stock this week. They also factored in a lower price-to-sales multiple, which resulted in a lower price target of $220, down from $249. While still seeing Cloudflare Inc. (NYSE:NET) as a best-in-class infrastructure company, the analysts said that the valuation fairly reflects most of its growth prospects.
Cloudflare Inc. (NYSE:NET) is a global cloud services provider offering a range of services, including content delivery network, cybersecurity, and DDoS mitigation.
7. CrowdStrike Holdings Inc. (NASDAQ:CRWD)
Market Cap: $118.6 Billion
Number of Hedge Fund Holders: 66
CrowdStrike Holdings Inc. (NASDAQ:CRWD) is among the best software infrastructure stocks to buy according to hedge funds. On Thursday, January 8, the company announced an agreement to acquire SGNL, an identity management startup, for $740 million, according to CNBC. The company believes the acquisition will bolster its position in the Next-Gen Identity Security space, complementing its Falcon platform intelligence.
The deal is expected to be closed in the first quarter of FY 2027, and the purchase price is expected to be paid predominantly in cash, with a portion in stock.
The CNBC report notes that CrowdStrike’s CEO and founder, George Kurtz, sees this as an opportunity to further penetrate the identity security market, which IDC expects to grow from approximately $29 billion in 2025 to $56 billion by 2029. The CEO further said,
AI agents operate with superhuman speed and access, making every agent a privileged identity that must be protected. With SGNL, CrowdStrike will deliver continuous, real-time access control that eliminates the known and unknown gaps from legacy standing privileges. We’re disrupting the premise of modern privilege and access – for every identity, human or machine. This is identity security built for the AI era.
The deal was well received by analysts, with many, including those at Jefferies and Barclays, reiterating their Buy ratings after the news. In fact, Berenberg Bank upgraded CrowdStrike Holdings Inc. (NASDAQ:CRWD) to Buy, citing the stock’s reasonable valuation following the recent pullback and the long-term benefits of the SGNL deal.
CrowdStrike Holdings Inc. (NASDAQ:CRWD) is an American cybersecurity technology company. Based in Austin, Texas, the company provides endpoint security, threat intelligence, and cyberattack response services.
6. Synopsys Inc. (NASDAQ:SNPS)
Market Cap: $100.5 Billion
Number of Hedge Fund Holders: 83
Synopsys Inc. (NASDAQ:SNPS) is among the best software infrastructure stocks to buy according to hedge funds. On January 2, Loop Capital analyst Gary Mobley reiterated his Buy rating on Synopsys but raised his price target to $600 from $570, implying a 28% upside.
While Synopsys Inc. (NASDAQ:SNPS) has underperformed during the last year with 2%-3% returns, Mobley believes that the stock could benefit from the broad-based rally he is expecting in 2026, partially driven by growth acceleration in automotive and industrial semiconductors. He also believes that sentiment towards the stock improved recently after it announced a strategic partnership with Nvidia, and the latter purchased $2 billion of Synopsys stock.
The analyst also expects Synopsys to benefit from growth in the Electronic Design Automation or EDA market. He said,
We believe the EDA market is entering a new paradigm of growth with AI-enhanced EDA tools results in higher annual contract values once licensees renew.” Mobley further added, “A combination of China export controls and uneven recovery in the semiconductor industry has recently masked the long-term growth potential of the EDA industry. However, China mix is now relatively small, especially for SNPS.
Synopsys Inc. is an American electronic design automation (EDA) company. It focuses on design and verification of silicon chips, electronic system-level design and verification, and reusable components.
5. MongoDB Inc. (NASDAQ:MDB)
Market Cap: $33.2 Billion
Number of Hedge Fund Holders: 89
MongoDB Inc. (NASDAQ:MDB) is among the best software infrastructure stocks to buy according to hedge funds. Around January 5, RBC Capital Markets analyst Rishi Jaluria reaffirmed his bullish stance on MongoDB Inc. (NASDAQ:MDB), raising his price target by 11% to $500 and maintaining an Outperform rating, according to The Fly.
The analyst acknowledged that the leadership teams from many companies are approaching 2026 with cautious guidance. However, he noted that underlying enterprise spending patterns are showing signs of stabilization. He also added that innovation driven by generative AI is gaining traction and is leading to incremental improvements across multiple areas of the software landscape.
On the other hand, Jaluria expects 2026 to be a year where clear benefits will be visible for software companies that are structurally positioned to benefit from enterprise AI adoption. In contrast, those companies that remain exposed to the “AI is the death of software” narrative are expected to lag. MongoDB Inc. (NASDAQ:MDB), with its AI-powered solutions, appears to be on the favorable side of this divide.
Around the same time as RBC’s update, Oppenheimer analyst Ittai Kidron, who rates MongoDB Inc. (NASDAQ:MDB) Outperform, also raised the stock’s price target to $490 from $450. The analyst expects a strong performance in 2026 as well, underpinned by the company’s strengths, such as its document model and vector search capabilities.
MongoDB Inc. (NASDAQ:MDB) is a developer data platform company best known for its MongoDB document-based database. The company helps companies build and scale modern applications by enabling flexible data management across cloud, on-premise, and hybrid environments.
4. Oracle Corporation (NYSE:ORCL)
Market Cap: $570.4 Billion
Number of Hedge Fund Holders: 122
Oracle Corporation (NYSE:ORCL) is among the best software infrastructure stocks to buy according to hedge funds. On January 5, Jefferies reaffirmed its Buy rating and $400 price target on the stock and named it one of its top picks, citing multiple factors, including its long-term positioning in the AI infrastructure space.
While there have been concerns about the debt Oracle Corporation (NYSE:ORCL) has been piling up to fund its AI-related expansion plans, the analyst believes that the company’s investment case rests on accelerating its data center buildout to meet surging AI compute demand. He also believes that it is critical for the company to execute this strategy to convert its more than $523 billion backlog into revenue in a timely manner. If Oracle delivers on its strategy as planned, it could solidify its position as a core infrastructure provider for AI workloads across hybrid and multi-cloud environments.
Jefferies also views Oracle Corporation’s (NYSE:ORCL) valuation as compelling after the substantial pullback in Oracle shares over the past three months. The firm believes Oracle should command a higher valuation and derived a $400 price target based on a 19x EV/FY 2030 EPS estimate of $21. With Oracle’s current valuation multiple of 16x EV/CY27 EBIT, the firm sees “far more upside than downside”.
On the same day as Jefferies’ rating action, UBS analysts also trimmed their price target on Oracle from $325 to $280. They, however, maintained their Buy rating, as they believe the pullback in share price has already factored in many concerns, including financing and credit risks.
Oracle Corporation (NYSE:ORCL) offers an extensive suite of database and cloud computing software and hardware. The Company offers databases and relational servers, application development and decision support tools, as well as enterprise business applications.
3. Alphabet Inc. (NASDAQ:GOOGL)
Market Cap: $4.0 Trillion
Number of Hedge Fund Holders: 243
Alphabet Inc. (NASDAQ:GOOGL) is among the best software infrastructure stocks to buy according to hedge funds. On January 5, Jefferies reaffirmed its Buy rating but raised its price target on the stock from $320 to $365.
As per the update, there were a number of factors that bolstered Jefferies’ positive case, and the first one among them was the “unrivaled data moat” that Alphabet Inc. (NASDAQ:GOOGL) has. Another factor was the company’s capability to sustain Gemini’s dominant position. The firm believes that this is well supported by Alphabet’s broad product ecosystem, which includes seven platforms with more than 2 billion monthly active users each.
Jefferies expects net revenue growth to moderate to around 13% in 2026, following two years of approximately 15% growth. However, operating leverage is expected to remain intact, with operating margins projected to expand by roughly 140 basis points to about 39%. This should partially offset the growth deceleration and support earnings. Moreover, the firm forecasts Google Cloud to sustain growth above 30% through 2026, driven by continued outperformance from Google Cloud Platform.
Despite Alphabet’s 2026 EV/EBITDA valuation of 17.6x, near its 15-year peak, Jefferies analysts believe the company’s strong earnings growth should justify a higher valuation. In a bull case scenario, they argued that its multiples could expand toward the valuation it commanded before the global financial crisis.
Alphabet Inc. (NASDAQ:GOOGL) is the parent company of Google and a pioneer in internet-related services and products, including online advertising technologies, search engines, cloud computing, software, and hardware.
2. Microsoft Corporation (NASDAQ:MSFT)
Market Cap: $3.6 Trillion
Number of Hedge Fund Holders: 312
Microsoft Corporation (NASDAQ:MSFT) is among the best software infrastructure stocks to buy according to hedge funds. On Thursday, January 8, Wells Fargo trimmed its price target on the stock from $700 to $665 while maintaining its Outperform rating, according to The Fly.
The revision followed the publication of Wells Fargo’s software-sector update for 2026, in which the analyst team argued that AI will remain “the name of the 2026 game”. They highlighted that investors can capitalize on opportunities in the AI landscape across three primary areas: infrastructure providers, established incumbents, and innovation-led platforms. While the firm expects variability in adoption trends, the underlying secular drivers are expected to underpin performance through 2026.
Earlier in the week, Jefferies analyst Brent Thill also reiterated his Buy rating and $675 price target on Microsoft Corporation (NASDAQ:MSFT), citing the company’s efforts to integrate AI across its product portfolio as a major growth catalyst. In a broader note on the software sector, Thill argued that “2026 will be another year of gradual AI monetization,” and that he sees “ample room for multiple expansion once AI monetization begins to lift growth.” In the mega-cap space, Microsoft and Meta were Jefferies’ top picks.
Microsoft Corporation (NASDAQ:MSFT) develops and sells a wide range of software, cloud services, devices, and business solutions, serving both individual users and enterprise customers worldwide.
1. Amazon Inc. (NASDAQ:AMZN)
Market Cap: $2.7 Trillion
Number of Hedge Fund Holders: 332
Amazon Inc. (NASDAQ:AMZN) is among the best software infrastructure stocks to buy according to hedge funds. On January 5, Jefferies hiked the stock price target from $275 to $300 and reiterated its Buy rating. The firm acknowledged that Amazon’s shares have underperformed in 2025, partly due to negative investor sentiment stemming from a perceived lag in AI development relative to peers such as Microsoft and Google.
However, the firm believes Amazon is in a very strong position, with a large-scale cloud computing presence through its Amazon Web Services (AWS), and is well positioned to capitalize on opportunities as focus shifts from AI model training toward inference and production workloads.
Jefferies highlighted that AWS revenue growth improved from 17% in the first half of 2025 to 20% in the third quarter, and sees scope for further acceleration into the mid-20% range in 2026. Margins are expected to remain resilient in the mid-30s, supporting continued profitability at the cloud segment level.
At the consolidated level, the firm models a modest slowdown in overall revenue growth to around 10% in 2026 from roughly 12% in 2025, alongside further operating leverage, with operating margins expected to expand to approximately 12.3% in 2026 from 11.2% in 2025.
Overall, at approximately 12x 2026 EV/EBITDA, Jefferies believes the valuation is attractive considering its expectations for strong growth and profitability.
That said, Amazon is a consensus Buy, with almost all 74 analysts covering it assigning a Buy or equivalent rating. The stock has already gained over 7% by the end of the first full week of 2026, and analyst consensus still expects it to rally another 21%, which would bring Amazon’s market cap above $3 trillion.
Amazon.com Inc. (NASDAQ:AMZN) operates across e-commerce, digital content, advertising, and cloud computing. Its online and offline stores offer both in-house and third-party products, while its Amazon Web Services (AWS) division runs one of the world’s largest data center networks.
While we acknowledge the potential of AMZN to grow, 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 AMZN and that has 100x upside potential, check out our report about this cheapest AI stock.
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