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Software stocks significantly lagged the S&P 500 last year, creating a buying opportunity.
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AppLovin’s AI platform helps brands create and optimize the performance of their advertising campaigns.
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Atlassian’s AI software helps technical (DevOps) and business teams collaborate and complete projects.
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10 stocks we like better than AppLovin ›
this S&P North America Technology Software Index Tracks the performance of 111 software stocks. Its performance has lagged behind S&P 500 Index (SNPINDEX:^GSPC) It’s down 19 percentage points over the past year, the software industry’s worst relative performance since the 2022 bear market.
Aside from that incident, software stocks have lagged the S&P 500 so badly at any time in the past decade. The reason for this trend is artificial intelligence (AI). Specifically, investors worry that AI will disrupt traditional business models and reduce demand for many software products.
Morgan Stanley Analysts Sanjit Singh and Keith Weiss have different views. “The productivity unleashed by artificial intelligence will expand the developer base and spur a wave of application modernization initiatives.” Against this backdrop, the recent underperformance of software stocks has created one of the only buying opportunities of the past decade.
that’s why Apply love (NASDAQ:APP) and atlas (NASDAQ: TEAM) Here are my picks for the best AI software stocks to buy right now.
AppLovin develops ad tech software that helps brands engage consumers and monetize web content through targeted campaigns. The company initially focused on mobile games, helping developers market and monetize their apps, but more recently it has expanded into e-commerce advertising. The feature is part of a new self-service platform that streamlines the onboarding process and ultimately automates every workflow.
AppLovin stands out in two important ways. First, it earns revenue based on ad performance (i.e. cost-per-action), whereas competitors like trading desk Just charge a certain percentage of your ad spend. Second, the artificial intelligence (AI) that powers its recommendation engine (Axon) outperforms similar targeting tools from other advertisers.
indeed, Morningstar Corporation Analyst Mark Giarelli said Axon has played a central role in the company’s success. “AppLovin’s ROAS ratio [Meta Platforms] 115% higher than secondary advertising platforms such as TikTok, interestSnapshot [by Snap]and YouTube,” he wrote in a recent note to clients.
Wall Street expects AppLovin’s adjusted earnings to grow 58% annually through 2027. That makes the current valuation of 66 times earnings look reasonable, especially when the company beat consensus earnings estimates by an average of 21% over the past six quarters.
Among 32 analysts, AppLovin has a median price target of $774.50 per share. This means there is room for a 45% upside from the current share price of $533. Patient investors should feel comfortable taking small positions today.
Atlassian develops work management and collaboration software for development and operations (DevOps) teams, as well as non-technical teams such as marketing and human resources. The company also develops IT service management software. Consulting services Gartner Corporation Atlassian is recognized as a technology leader in DevOps, marketing effort management, and enterprise service management platforms.
Atlassian stands out in two ways. First, it invests more in research and development than its peers because it relies on self-service sales and word-of-mouth marketing. Second, it is the only work management software provider that connects technical, non-technical and IT services teams on a common platform, which not only facilitates better collaboration across the enterprise but also provides companies with numerous upsell opportunities to existing customers.
Atlassian has launched a set of generative artificial intelligence capabilities called Rovo. It enables intelligent search, process automation, and code generation to increase productivity and efficiency across business teams. As a well-known software vendor in multiple product categories, Atlassian could be a huge winner as the AI boom unfolds.
Wall Street expects Atlassian’s adjusted earnings to grow 22% annually in the fiscal year ending in June 2027. That makes the current valuation of 31 times earnings look reasonable, especially since the company has beaten consensus earnings estimates by an average of 16% over the past six quarters.
Among 34 analysts, the median price target for Atlassian is $225 per share. This represents an 84% upside from the current share price of $122. With the stock price 62% below its highest price, investors have an excellent opportunity to take a small position.
Before buying AppLovin stock, consider the following factors:
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Trevor Jennewine works at The Trade Desk. The Motley Fool has posts and recommendations on Atlassian, Meta Platforms, Pinterest, and The Trade Desk. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
A once-in-a-decade investment opportunity: Two of the best artificial intelligence stocks to buy right now originally published by The Motley Fool