I'm LongbridgeAI, I can summarize articles.JPMorgan identifies Microsoft, ServiceNow, Snowflake, and Cloudflare as top software stock picks, anticipating the sector rally will extend through Q3 earnings. The bank argues AI supports infrastructure software while application software fears are overly pessimistic. Conversely, HubSpot was downgraded to Neutral. Investors should monitor upcoming earnings for AI monetization progress and valuation justification amid recent strong performance.
JPMorgan expects the software rally to extend through third-quarter earnings, arguing that artificial intelligence is supporting infrastructure software while fears of disruption across application software may have become too pessimistic. The bank favors Microsoft , ServiceNow , Snowflake and Cloudflare , giving investors a mix of enterprise AI, cloud data and network-security exposure.
The call comes after a sharp sector rebound. The iShares Expanded Tech-Software Sector ETF (IGV) has gained about 36% over the past six months, more than double the S&P 500's roughly 15% advance.
"We expect the broader recovery in the software sector index to continue with upsides to Application Software company share prices more likely to be driven by re-rating of valuation multiples as fundamentals prove to be more resilient than priced in by low investor expectations on account of AI disruption threats," JPMorgan analyst Samik Chatterjee said.
For infrastructure software, JPMorgan sees a different catalyst.
"For Infrastructure software companies we expect share prices upsides to be driven by positive estimate revisions helped by AI-led secular tailwinds to revenue despite the backdrop of rich valuation multiples."
Microsoft remains a preferred name as adoption of Copilot products expands, though monetization is expected to build gradually. ServiceNow could benefit from continued enterprise momentum and higher AI-related revenue expectations.
Snowflake may gain from accelerating customer migrations and AI workloads, while JPMorgan believes Cloudflare could push revenue growth into the high-30% range as AI companies demand more security and network-performance services.
The bank was less constructive on HubSpot (HUBS), cutting the stock to Neutral from Overweight.
Investor takeaway
The upcoming earnings season will test whether software fundamentals can justify the sector's recent re-rating.
For Microsoft and ServiceNow, investors should watch AI monetization and enterprise bookings. Snowflake's consumption growth and migrations will be critical, while Cloudflare needs to prove that AI-driven traffic can translate into sustained high-30% revenue growth.
The biggest sector risk is valuation. After IGV's 36% six-month run, merely meeting expectations may no longer be enough.
Stronger guidance and upward estimate revisions would extend JPMorgan's thesis. Slower AI monetization or longer customer buying cycles could quickly revive disruption concerns.