TLDR
- Four software companies—Workday, DocuSign, Monday.com, and Freshworks—received Hold ratings from Jefferies amid AI-related concerns
- The software sector has experienced significant declines, with individual stocks falling 30–55% this year compared to IGV’s 24% decline
- Jefferies identifies Intuit, Procore, Atlassian, and Salesforce as better equipped to navigate AI transformation
- The iShares software ETF has reached a historically significant support zone that previously attracted buyers
- Microsoft insider activity shows the first share purchase in nearly a year, historically a positive indicator
Jefferies has conducted a comprehensive reassessment of its U.S. software sector coverage, resulting in downgrades for four companies as artificial intelligence creates new competitive dynamics.
Brent Thill, the firm’s analyst, reduced ratings on Workday, DocuSign, Monday.com, and Freshworks to Hold. Each downgrade reflects concerns about negative sentiment, intensifying competition, and growth rates falling short of expectations.
Workday faces challenges from leadership transitions and operational execution issues. According to Thill, the company will need to revise its medium-term growth projections downward once again.
DocuSign’s downgrade stems from limited advancement in its Intelligent Agreement Management offering. The analyst believes a recovery to double-digit growth rates remains distant.
Monday.com was downgraded as Thill identified uncertainty in both its small business operations and enterprise divisions. Freshworks confronts emerging AI-powered competition threatening its core customer experience solutions.
The software industry overall has experienced substantial losses. Individual stocks have declined between 30% and 55% year to date, while the IGV software benchmark has dropped approximately 24% during the same timeframe.
Jefferies employed a newly developed AI risk assessment model combined with traditional fundamental analysis to reevaluate the sector. The objective was to distinguish companies facing elevated risks from those with stronger adaptive capabilities.
Jefferies’ Preferred Software Stocks
Contrasting the downgrades, Thill identified Intuit, Procore, Atlassian, and Salesforce as favored holdings. These companies demonstrate more resilient business models and superior AI integration capabilities.
Intuit represents Jefferies’ top choice among large-cap names. The company’s extensive data repositories and broad customer reach position it advantageously for AI tool deployment.
Procore emerged as an appealing mid-cap vertical software opportunity. Thill anticipates revenue acceleration as macroeconomic conditions stabilize.
Atlassian stands to benefit directly from AI-powered software development trends. Increased AI-generated code production creates greater demand for IT collaboration platforms, which form Atlassian’s primary business.
Salesforce received recognition as the applications vendor best positioned to capitalize on AI agents. Successful implementation could catalyze growth throughout the organization.
Software ETF Hits Historical Support Level
Meanwhile, the iShares Expanded Tech-Software Sector ETF has declined 31% from its September peak of approximately $117. The fund recently touched lows just above $79.
This price point corresponds with previous buying zones. The ETF established support around $81 following April 2025’s downturn, and within the high $70s to low $80s range throughout 2023 and 2024.
Bank of America’s Savita Subramanian has warned that valuations may face additional pressure. She indicates that earnings estimate revisions suggest forward price-to-earnings ratios could compress further.
A notable signal emerged from within Microsoft. Board member John Stanton acquired 5,000 shares valued at approximately $2 million late this month. This marks Microsoft’s first insider purchase in 10 months, according to Jefferies trading analyst Jeff Favuzza.
Favuzza observed that since early 2022, Microsoft insiders have predominantly sold during stock rallies. The single previous insider purchase preceded a 51% stock appreciation over the subsequent six months beginning last April.
