Guggenheim upgrades 3 software stocks to Buy as AI fears ease

Guggenheim upgraded three software stocks to Buy, arguing AI will not become the industry's death knell.

"Current software company valuations reflect an expectation that many will enter a prolonged decline because of AI," analyst John DiFucci at Guggenheim said in a research report Wednesday. "We disagree."

DiFucci raised Salesforce Inc., ServiceNow Inc. and Check Point Software Technologies Ltd. to Buy from Neutral. Shares of ServiceNow rose 4.6%, Salesforce gained 4.9% and Check Point added 2.7%. The iShares Expanded Tech-Software Sector ETF climbed 3.2%. DiFucci set a $188 price target on Check Point, implying roughly 40% upside from its pre-upgrade level.

The upgrades represent a contrarian bet against the prevailing narrative that generative AI will render traditional enterprise software obsolete. DiFucci acknowledged that competition from AI-native companies will pressure legacy vendors but called the view that the entire industry faces a fatal blow an "illusion." He said current valuations already price in a worst-case scenario, creating an entry point for investors willing to bet against the consensus.

The broader software sector has sold off this year as investors rotated into AI-exposed names, widening the valuation gap between legacy enterprise platforms and AI-native companies. The iShares ETF remains down year-to-date even after Wednesday's rally, reflecting persistent skepticism about the growth trajectory of traditional software firms.

The upgrades could trigger a broader re-rating across the software sector if other analysts follow Guggenheim's lead. Investors will watch for rating changes from bulge-bracket firms in the coming weeks as second-quarter earnings season approaches.

This article is for informational purposes only and does not constitute investment advice.