Jefferies maps 2026 software winners and laggards as AI fears ease

Investing.com -- U.S. software stocks are expected to head into 2026 with a more balanced setup after a difficult 2025 marked by valuation pressure and heightened concern over artificial intelligence disruption, according to Jefferies.

“AI concerns and mixed fundamentals led most of our coverage to decline in 2025,” leaving much of application software trading well below historical averages, analysts led by Samad Samana said in a report.

The brokerage expects multiples to stabilize or expand modestly next year as rate cuts provide a mild tailwind and investor focus shifts from broad AI risk to differentiated monetization outcomes.

But multiple expansion is likely to remain selective, favoring companies with clearer growth durability or improving perceptions around AI-driven revenue, analysts said. As a result, they see a clearer split between potential leaders and laggards than in 2025.

Within payroll software, Jefferies remains cautious, describing the group as “down, and likely to stay out.”

It expects large-cap payroll vendors to lag again in 2026, citing limited improvement in the fundamental outlook, while noting mid-cap peers may be relatively better positioned due to takeout optionality.

In enterprise communications, the analysts urge selectivity, highlighting benefits from AI adoption for some platforms but warning that execution risk and disruption could continue to weigh on vendors undergoing management transitions.

E-commerce software, meanwhile, stands out more positively. Jefferies expects high-end consumer spending and market share gains to support another solid growth year, while agentic commerce workflows could improve product discovery and conversion even if consumer demand moderates.

At the stock level, Jefferies sees ServiceNow (NYSE: NOW) regaining momentum in 2026 as its AI product suite matures and execution improves, supporting a return to roughly 20% subscription revenue growth.

Shopify (NASDAQ: SHOP) is also viewed as fundamentally strong, with enterprise traction and agentic commerce offsetting consumer volatility, though the analysts warned against chasing the stock after a 50% multiple re-rating.

The team highlighted HubSpot (NASDAQ: HUBS) as a recovery candidate after heavy multiple compression, with AI concerns largely priced in and scope for shares to grind higher if growth and margins remain steady.

Jefferies also reiterated a constructive view on Toast (NYSE: TOST), citing healthy business momentum and a more attractive valuation backdrop.

In communications, Twilio (NYSE: TWLO) is seen benefiting from a voice AI product cycle and political advertising. “The “infrastructure of voice AI” trade still has legs,” the analysts wrote.

By contrast, they expect ADP (NYSE: ADP) to remain a laggard in 2026 as growth challenges intensify and long-term earnings expectations are reassessed. Jefferies downgraded the stock to Underperform.

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