It has been a rough few weeks for software stocks.
As a new generation of AI tools hits the scene, markets have begun to worry: If AI can write code, analyze data, and track expenses, do traditional software-as-a-service (SaaS) companies still have a reason to exist? Panic has spread rapidly, triggering broad selling across the software sector and pushing the S&P software index into bear market territory.
But now, JPMorgan is pushing back: The fears are overblown.
In a recent note, the bank’s head of global markets strategy, Dubravko Lakos-Bujas, said markets are pricing in near-term AI disruption at levels that appear “unrealistic.” “Given the positioning flush, overly bearish outlook on AI disruption of software and solid fundamentals, we believe the balance of risks is increasingly skewed towards a rebound,” he wrote.
Just how severe has the selloff been? Kriti Gupta, global investment strategist at JPMorgan, described it as “indiscriminate.” She noted that even companies expected to benefit from AI infrastructure demand have been dragged down alongside software names.
Gupta suggested the sharp reaction may reflect extreme investor anxiety that “agentic AI” could one day render existing software products entirely obsolete.
But she also highlighted a key countertrend: corporate AI adoption is already tangibly improving profitability. Data shows that companies within the S&P 500 currently using AI have seen net margin expansion roughly 2 to 3 percentage points higher than their peers and the index overall. This suggests the productivity gains from the technology are already beginning to materialize.
JPMorgan’s strategy team argues that the “extreme price action” in software stocks has created conditions for a rotation back into the sector, particularly toward higher-quality names more resilient to AI-driven changes.
The bank has identified a group of software companies with built-in moats. These businesses share common characteristics: strong customer stickiness, high switching costs, and multi-year contracts that reduce the risk of sudden disruption. At the same time, they are positioned to benefit from AI-driven workflow improvements.
Among the names highlighted by JPMorgan as particularly resilient are:
In addition, the bank sees 17 other software companies as relatively resistant to AI disruption:
Twilio Inc. (TWLO), Okta Inc. (OKTA), ServiceNow Inc. (NOW), Palo Alto Networks Inc. (PANW), Zscaler Inc. (ZS), Check Point Software Technologies Ltd. (CHKP), SentinelOne Inc. (S), Snowflake Inc. (SNOW), Datadog Inc. (DDOG), Veeva Systems Inc. (VEEV), Guidewire Software Inc. (GWRE), CoStar Group Inc. (CSGP), Tyler Technologies Inc. (TYL), JFrog Ltd. (FROG), SailPoint Inc. (SAIL), Netskope Inc. (NTSK), and Q2 Holdings Inc. (QTWO).
JPMorgan’s message is clear: When markets throw the baby out with the bathwater, opportunities often emerge for investors willing to take a closer look.
