Jefferies Downgrades Software Stocks
Jefferies has recently revised its U.S. applications software coverage, indicating increasing risks from AI disruptions across the sector. The firm downgraded four stocks to Hold while highlighting a select group of preferred stocks.
Application software stocks have lagged behind the broader software benchmark, with many experiencing declines of approximately 30% to 55% year-to-date, compared to a 24% drop for the IGV index. In light of this, Jefferies reassessed the group using a new AI risk framework alongside company-specific fundamentals and catalysts.
Analyst Brent Thill downgraded Workday ($wdc), DocuSign ($docu), Monday.com ($monday), and Freshworks ($frsh) to Hold, citing persistent risks and a decline in sentiment. Regarding Workday, he mentioned execution concerns stemming from leadership changes, suggesting that the "medium-term growth bar needs to be lowered…again."
On DocuSign, Thill expressed that a return to robust growth will require time, stating that "double-digit growth reaccel is a ways away" and that its Intelligent Agreement Management platform still needs to demonstrate its effectiveness.
Thill also highlighted Monday.com’s unclear outlook in both the SMB and enterprise segments and noted that Freshworks faces challenges from AI and competitive pressures within its core customer experience business.
Conversely, the analyst sees several companies as better positioned for the AI transition. He favors Intuit ($intu), Procore ($prcr), Atlassian ($team), and Salesforce ($crm), citing more resilient business models and internal AI adoption that bolster growth confidence.
Among these, Intuit stands out as Jefferies’ top large-cap pick, supported by its extensive data assets and AI deployment across a broad customer base. Thill views Procore as an attractive mid-cap vertical software story, anticipating potential revenue acceleration as macro conditions improve.
Atlassian is seen as a structural beneficiary of AI-driven coding trends, with Thill noting that increased AI-generated code should boost demand for IT collaboration tools. Meanwhile, Salesforce is highlighted as the "best-positioned among apps vendors to deliver on AI agents," with successful execution expected to catalyze broader growth acceleration.
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