Key Highlights
- Mizuho selected Cloudflare, ServiceNow, and Atlassian as preferred software investments entering Q1 earnings season
- Application software companies in Mizuho’s research universe experienced average declines of 61% during the past twelve months
- Forward-looking EV/Sales metrics currently trade 40% beneath historical three-year benchmarks, creating what Mizuho considers compelling value opportunities
- Cloudflare’s 13% share decline after the Claude Managed Agents release appears excessive, according to the firm’s analysis
- Analysts reduced valuation targets for multiple companies including Microsoft, Palantir, Check Point, and Datadog
Mizuho’s research team has identified Cloudflare, ServiceNow, and Atlassian as premier software investment opportunities heading into the first-quarter earnings cycle. The financial institution’s proprietary industry analysis reveals robust consumption patterns and accelerating AI implementation, even as software sector valuations have experienced significant compression.
Gregg Moskowitz, the lead analyst, released the research note on Tuesday. The timing coincides with a challenging environment for software equities across the board.
Application software companies within Mizuho’s coverage universe have declined an average of 61% during the trailing twelve-month period. Infrastructure software stocks managed modest 1% average gains, while cybersecurity-focused companies experienced 22% average losses.
Mizuho attributed concerns about AI-driven business model disruption as a primary catalyst for the sector-wide decline. The firm observed that SaaS companies have lagged infrastructure software performance by approximately 40 percentage points beginning in February 2025.
Valuation metrics across the software industry have undergone substantial recalibration. Mizuho’s analysis shows that forward EV/Sales multiples currently sit 40% beneath their three-year historical average. The firm characterized the present risk/reward profile as “quite attractive” for the coming twelve-month period, while acknowledging potential near-term volatility.
Cloudflare
Cloudflare received “favorable” assessments in Mizuho’s quarterly channel checks. The firm anticipates another reporting period where revenue growth surpasses company guidance, marking a fourth consecutive quarter of revenue acceleration.
Shares declined 13% following Anthropic’s announcement of Claude Managed Agents last Tuesday. Mizuho characterized this decline as “overdone” and maintained its Outperform recommendation, while adjusting the price objective to $235 from the previous $255 level.
ServiceNow
ServiceNow’s first-quarter channel checks revealed large-deal activity exceeding expectations, Mizuho reported. The firm highlighted that Pro Plus product adoption continues advancing at a healthy pace.
Agentic AI capabilities delivered through assist packs are building momentum across distribution channels, though Mizuho acknowledged the early-stage nature of this adoption. The firm projects ServiceNow will surpass its 20% year-over-year constant currency cRPO growth target.
Mizuho preserved its Outperform designation while adjusting the price objective to $150 from $190. Current trading levels position the stock around 12x calendar year 2027 projected free cash flow.
Atlassian retained its Outperform rating as well. Mizuho revised its price target to $145 from $185 while continuing to forecast substantial subscription revenue acceleration for a second consecutive quarter.
The firm acknowledged that recently implemented reductions to partner compensation margins could have constrained information gathered through channel research. Regardless, Atlassian’s channel feedback demonstrated relative strength compared to certain competing companies.
Mizuho implemented price target reductions across multiple portfolio holdings. Check Point’s objective moved to $165 from $205. Microsoft saw a reduction to $515 from $620. Palantir’s target adjusted to $185 from $195. Datadog’s price objective shifted to $145 from $170.
The institution’s comprehensive software sector perspective remained measured yet constructive. Mizuho described public cloud and consumption dynamics as “generally good” and characterized AI adoption as “very strong” based on first-quarter research findings.
