Artificial intelligence (AI) is moving hard and fast. Since the launch of OpenAI’s ChatGPT, investors have wondered how many different jobs AI could displace and in which industries. With the release of Anthropic’s Claude Cowork tool, which can autonomously perform tasks on a computer that are normally done by multiple software applications, Claude acts more like a teammate than a chatbot. Now all eyes are on software, which, not long ago, was considered one of the best sectors in the market.

From December 10, the iShares Expanded Tech-Software Sector ETF has fallen more than 22% (as of February 3), officially putting software stocks in bearish territory. While the market is clearly worried, Wall Street analysts think the sell-off could be overdone and that some software stocks offer attractive opportunities.

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Here are three software stocks with average price targets that imply upside of 47% to 63%, according to Wall Street analysts.

The cloud security and monitoring software company Datadog (NASDAQ: DOG) has seen its stock take a beating since hitting nearly $200 a share in early November. It recently traded around $120.

The company offers a number of capabilities, including monitoring infrastructure such as servers, detecting threats and potential breaches, and tracking user interactions, all of which can help improve cloud performance. While it’s easy to imagine AI taking over some of these roles or creating more competition, it’s also very likely that companies like Datadog will use AI to further automate their operations, create new capabilities, and open up new lines of business.

Companies like Datadog are very aware of the biggest problems facing their customers and are very innovative. DA Davidson analyst Gil Luria wrote in a recent research note: “Nothing about the software The business model has really changed.” Wall Street estimates currently project that the company will grow revenue by 20% by 2026.

Luria also said he believes these companies will take advantage of the AI ​​boom. In November, Luria said in a research note that Datadog had announced a nine-figure annual deal with a large AI customer, believed by many to be OpenAI.

Of the 33 Wall Street analysts that have issued research notes on the company, 30 have a buy rating, two have a hold rating and one has a sell rating. The average price target now implies 61% upside, according to market researcher TipRanks.

Snowflake (NYSE: NEU)another data-intensive business, went public in late 2020 and has previously been a market darling. The company stores immense amounts of data and allows businesses to analyze it in a variety of ways, while allowing them to share and store it securely. The platform can be used on different clouds, including Amazon web services, Microsoft Azure, i alphabetGoogle Cloud of.

Snowflake has struggled to convince investors that it has a prudence AI strategy. Additionally, the company is still unprofitable, has disappointed investors with its recent guidance, and trades at a high valuation. So if the growth isn’t obvious and there’s competition from AI, it’s easy to see why investors might be concerned.

But CEO Sridhar Ramaswamy recently told Business Insider that the biggest mistake people make when thinking about AI is that it’s an all-or-nothing proposition. Rather, AI is likely to be more subtle and used in certain circumstances, he said. Additionally, Snowflake has partnered with esteemed AIs such as Palantir Technologies and recently completed a $200 million deal with OpenAI, so it seems that big AI companies are finding a lot of software companies useful.

Of the 33 Wall Street analysts that have issued research reports in the past three months, 30 have a buy rating on the stock, and three recommend a hold. According to TipRanks, the average price target implies almost 63% upside.

It feels odd to call Microsoft a software stock, given that it’s expected to be one of the biggest beneficiaries of the AI ​​boom. But the stock is down more than 23% in the past six months and has many software companies under its umbrella, including its suite of office products, such as Excel and Word, all bundled under the Microsoft 365 platform.

The stock sold off sharply after Jan. 28, 2026, when the company reported earnings for the second quarter of its fiscal year 2026. The selloff stemmed from lower-than-expected growth in Microsoft’s important Azure cloud business, which accounts for much of the company’s AI-related revenue at the moment. Investors have set a high bar for hyperscalers, given all the capital spending Microsoft has put into AI infrastructure.

Analysts a UBS noted that Microsoft 365 revenue growth has not accelerated, despite the company announcing that its AI assistant, Copilot, has 15 million paying users. Copilot leverages AI to automate tasks within the 365 platform.

This shows that while software stocks are selling off on AI fears, the technology is not necessarily replacing or even reinforcing software in all cases. AI companies have also faced a myriad of concerns in recent months.

Many on Wall Street still see Microsoft as a way to gain exposure to AI, if not the best way. Of the 35 Wall Street analysts that have issued research reports on the company in the last three months, 34 have a buy rating and one has a hold rating. The average price target implies almost 47% upside, according to TipRanks, which is a big implied move for one of the largest companies by market cap.

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Bram Berkowitz has no position in any of the aforementioned stocks. The Motley Fool has positions in and recommends Alphabet, Amazon, Datadog, Microsoft, Palantir Technologies and Snowflake. The Motley Fool has one disclosure policy.

Software bear market: 3 stocks up 47% to 63%, according to Wall Street was originally published by The Motley Fool