Key Takeaways
- Citi moved six software stocks—Similarweb, Docusign, Autodesk, Nice, CCC, and Veeva—from Buy to Neutral ratings
- Price target reductions exceeded 40% for several companies in Citi’s analysis
- Piper Sandler identified Anthropic’s Claude Managed Agents as a competitive challenge to established software providers
- Analysts at both institutions express preference for hyperscaler platforms including Microsoft and Oracle
- Jim Cramer observes renewed strength in the hardware investment thesis versus software positions
Citi Research shifted its stance on six application software companies Friday, moving them from Buy recommendations to Neutral positions. The affected firms include Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. Each company experienced share price declines during Friday’s trading session.
Tyler Radke, analyst at Citi, explained the revised outlook stems from limited upcoming positive catalysts combined with mounting evidence that artificial intelligence poses risks to established software revenue models. “We believe most of these are good companies and may be well positioned long-term but don’t have exciting 12-month catalysts,” Radke stated in his research note.
The firm implemented significant price target reductions alongside the downgrades. Docusign’s target fell from $99 to $50. Veeva experienced a decline from $291 to $176. Similarweb received the most dramatic adjustment, dropping from $8.50 to $3.
Radke highlighted projections showing privately held AI enterprises generating over $100 billion in incremental revenue during upcoming years. Traditional application software companies face comparatively modest growth of $50 billion. Additional headwinds include increased software optimization expenses and accelerating vendor consolidation trends.
New AI Agent Platforms Intensify Competition
Billy Fitzsimmons, analyst at Piper Sandler, identified another factor contributing to software sector weakness. Anthropic recently unveiled Claude Managed Agents, offering pre-configured, customizable agent systems optimized for extended and asynchronous workflows.
Fitzsimmons expressed concern that Anthropic’s agent offerings will directly challenge solutions developed by incumbent software enterprises. He anticipates negative sentiment toward the software sector persisting through the end of the year at minimum.
Piper Sandler reduced ratings across several software names while elevating companies that directly monetize AI computational resources. The firm designated Microsoft and Oracle as preferred investments, emphasizing their Azure and Oracle Cloud Infrastructure divisions respectively.
Microsoft currently trades at a forward price-to-earnings multiple of 20x based on 2027 projections while producing $77.4 billion in levered free cash flow. Following a 27% decline over six months, Piper Sandler views the valuation as attractive.
Infrastructure Investments Outpace Application Layer
Jim Cramer of CNBC addressed the widening performance gap between hardware and software equities Thursday. He noted the hardware investment approach versus software positioning, prominent during early 2026, has regained traction.
Salesforce declined nearly 3% while Adobe shed approximately 4% during Thursday’s session. The IGV software ETF, serving as a sector benchmark, dropped more than 4%. CrowdStrike fell 7.5%, affected primarily by its inclusion in the fund despite its cybersecurity focus.
Hardware manufacturers demonstrated opposite momentum. Marvell Technology and Intel each advanced close to 5%. Corning, providing materials for data center construction, climbed 2.85%.
Cramer characterized companies enabling AI infrastructure as market leaders while enterprise software faces treatment as a contracting category. He suggested this dynamic appears durable rather than temporary.
Piper Sandler additionally highlighted Global-e Online as a favorable selection. The company derives revenue from ecommerce transaction volumes rather than software licensing models, projecting 29% revenue expansion for the current year.
