Bank of America raises target prices for 10 software stocks across the board: concerns over AI impact have eased, leading to a revaluation of the sector.

Bank of America Corp analyst Tal Liani's team released a report on Wednesday, significantly raising the target prices for 10 software stocks, including ServiceNow (NOW.US), Figma (FIG.US), and Snowflake (SNOW.US). This adjustment is based on the overall expansion of valuation multiples in the software industry and the ongoing alleviation of market fears regarding the disruptive impact of AI. Meanwhile, reports of slowing revenue growth at OpenAI have further eased market panic over the notion that "AI will disrupt the software industry," leading to a broad rally in the software sectorServiceNow surged 6.5% at Wednesday's close, while Figma, Workday, and Adobe saw increases between 3% and 4%. The iShares Expanded Tech-Software Sector ETF (IGV) also rose by 1%. Overview of target price adjustments: highest increase of 46% Bank of America's target price adjustments cover three major segments: infrastructure software, large software, and application software. Among these, Workday saw the most significant increase in target pricefrom $140 to $205, an increase of 46%. Snowflake's target price was raised to $395, representing the highest absolute price among all covered entities. Rationale for the adjustments: expansion of valuation multiples, reduction in AI concerns Tal Liani stated in the report that this adjustment reflects "the overall expansion of valuation multiples in the software industry, and our views on valuation and fundamentals have not changed." Analysts attribute the recent strong performance of software stocks to three factors: strong earnings and accelerated growth from certain infrastructure software companies, recognition of large and application software companies recovering from a depressed valuation status, and the alleviation of market concerns regarding the disruptive impact of AI, which has improved investor sentiment. Benchmark analyst Yi Fu Lee further noted that a fundamental shift in market sentiment is occurring: "The market is beginning to build stronger confidence in fundamental improvements and is increasingly recognizing that software is becoming a beneficiary of corporate AI deployment, rather than a victim of AI disruption." The slowdown in OpenAI's growth has also acted as a catalyst. Reports indicate that OpenAI's revenue grew 18% quarter-over-quarter to $6.7 billion in the second quarter, but its operating loss widened from $9.3 billion to $12.3 billion. Raymond James analyst Adam Tindle pointed out that the slowdown in OpenAI's growth momentum "lessens the perceived threat that AI could cripple the survival of Software as a Service (SaaS) businesses." Divergence in stock ratings: from "Buy" to "Underperform" Among large software stocks, ServiceNow and Figma received "Buy" ratings. Liani believes that ServiceNow has an advantage in implementing agency-based AI solutions due to its historical data and background information on enterprise workflows. ServiceNow's deep understanding of client operations will sustained revenue growth and free cash flow expansion. Workday maintains a "Neutral" rating, while Adobe remains at "Underperform." Analysts believe the recent speed of stock price increases for these two has outpaced signs of fundamental growth. This judgment reveals a divergence occurring within the software sector: companies with a clear path to monetizing AI are being revalued, while rises driven solely by sector sentiment recovery may face ceilings. In infrastructure software, Snowflake received a "Buy" rating due to its continued strong growth and AI monetization potential. GitLab and Amplitude maintain "Neutral" ratings. In application software, Box, Asana, and Zeta received "Buy" ratings due to their sustainable growth prospects and emerging AI monetization opportunities. Bank of Americas comprehensive target price adjustment for software stocks serves as the latest signal of the sectors continued recovery since the panic sell-off related to AI in the first half of the year. As market narratives regarding "AI will kill software" gradually lose their allure, investors are refocusing on companies that can translate AI into actual revenue growth. As Benchmark analysts noted, the market is "rewarding those companies that demonstrate tangible evidence of AI adoption, customer spending, and monetization." Following ServiceNow's strong earnings report and subscription revenue forecast increase released in late July, it has become the best illustration of this logic. Bank of America's target price adjustment further reinforces this trend from Wall Street.