7 software stocks set to thrive in the face of AI uncertainty

By Philip van Doorn and Hannah Pedone

Analysts at William Blair reassessed their ratings methodology for 17 infrastructure stocks, leading to several rating downgrades, as well as many votes of confidence

Microsoft is a software company that William Blair analyst Jason Ader has called out as a likely winner in the age of artificial intelligence.

The software industry has reached a critical juncture as artificial intelligence threatens to upend how companies generate revenue, some analysts believe.

And because of this shift, analysts at William Blair, led by Jason Ader, have re-evaluated the firm's benchmarks for assessing which software companies are poised to outlast their competitors amid AI uncertainty.

Companies are forced to "rethink their product, their pricing, and their go-to-market strategy," Ader wrote in a report on Monday.

Against this backdrop, Ader has constructed a new ranking system to evaluate which stocks are best positioned to compete.

He listed seven software stocks that scored high on the new criteria - factors such as AI defensibility, the cost for customers to switch platforms, and the companies' pricing models. These stocks had already been rated "outperform" by William Blair.

Microsoft (MSFT) is one of Ader's picks because of its ability to defend its products and services against the threat of AI, particularly given the success of the company's Azure model and the "rising adoption of its various Copilots (particularly M365 Copilot)." He added that the company's product offerings across cloud, productivity software and security will allow it to "shape enterprise AI adoption," as opposed to "respond to it."

Everpure (PSTG) is another of Ader's highest-scoring companies. He said the company will see increased revenue growth due to factors such as the company's ability to monetize AI using its unique in-house software tools, which AI will struggle to replicate.

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DigitalOcean Holdings (DOCN) also scored high for its particular pricing methodology. Ader said that the company's consumption-based model will allow it to monetize customer usage more efficiently than pricing based on seat count. He also noted the company's success since hiring a new CEO in 2024 and its rapid product development.

Snowflake (SNOW) is another company with a consumption-based pricing model that Ader expects to perform well in the AI era. The analyst also noted Snowflake's success in expanding beyond its traditional offerings into AI and data engineering.

Another factor that Ader believes is critical for a company's ability to compete against AI offerings is the cost for customers to switch platforms. He said Rubrik (RBRK) is set to perform well given its ability to combine a number of offerings across backup services, data security and cyber, which helps the company lock in customers.

Among the 17 companies that Ader and the other William Blair analysts re-evaluated, the other two that scored high enough to maintain their "outperform" ratings were MongoDB (MDB) and JFrog (FROG).

Read: seven software stocks to buy as the sector shows signs of life

The reassessment led the William Blair team to maintain its neutral rating for NetApp (NTAP), while downgrading Nutanix (NTNX), AvePoint (AVPT), Commvault Systems (CVLT), Varonis Systems (VRNS), and Box (BOX) to neutral ratings from "outperform" ratings.

Three companies - Blackblaze (BLZE), N-able (NABL) and GitLab (GTLB) - were cut to "underperform" ratings from "outperform," while Dropbox (DBX) was cut to "underperform" from a neutral rating.

Sales projections for William Blair's seven favored companies

Ader wrote: "AI has introduced a level of uncertainty in the software industry that is not likely to change any time soon, and which we believe renders traditional valuation metrics - particularly those reliant on long-term sales and cash flow forecasts - less reliable and relevant."

Here are the projected compound annual growth rates (CAGR) for revenue for the seven infrastructure software companies the William Blair team rated "outperform." These projections are based on consensus estimates for calendar-year revenue through 2028 among analysts working for brokerage and research firms polled by LSEG. The table also includes this year's price changes for the stocks through Monday. The seven companies are sorted by the William Blair analysts' score ranking.

   Company                   Projected three-year sales CAGR through 2028  2026 price change 
   Everpure                                                         15.8%                -4% 
   DigitalOcean Holdings                                            25.2%                79% 
   Snowflake                                                        24.3%               -21% 
   MongoDB                                                          18.8%               -35% 
   Rubrik                                                           21.7%               -33% 
   Microsoft                                                        16.5%               -21% 
   JFrog                                                            18.9%               -32% 
                                                                                Source: LSEG 

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-Philip van Doorn -Hannah Pedone

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03-24-26 2044ET