Investing.com -- BMO Capital Markets updated its views on software sector stocks after second-quarter earnings, raising price targets on several companies while highlighting opportunities in human capital management and payroll stocks.

The firm increased its price target on Paychex to $118 from $103, Paycom to $235 from $208, and Wolters Kluwer to $82 from $70.

BMO said the outlook for HCM and payroll stocks appears constructive due to improved labor market conditions and reasonable model setups compared to other groups. The firm noted that payroll services show stickiness even as AI tools change enterprise workflows.

Most stocks in the application and vertical software coverage areas have underperformed the broader software industry since earnings, according to BMO. The firm said uncertainty remains about medium-term growth durability as AI tools advance.

The debate on AI has intensified in vertical software as new market entrants build AI-native tools for digital engineering, design, and project management, BMO said. Stocks including Autodesk, Bentley Systems, Procore Technologies, and PTC have underperformed since their earnings reports.

BMO maintained that design and PLM companies have a relative data advantage that could help them capture digital transformation opportunities driven by AI over time.

The firm's top tier of Outperform-rated ideas includes Samsara, Navan, PTC, and Paylocity. Among Market Perform stocks, BMO said its perspectives lean more positive on Autodesk, ADP, and Bill.com at current valuations.

BMO expects Paychex results later this month to show moderate revenue upside with strong earnings performance that should drive a full-year guidance increase for earnings growth.