Bank of America is growing more bullish on a group of software companies that it believes are well positioned to benefit from artificial intelligence, helping fuel a broader rally in the sector on Wednesday.
The bank raised its price targets for ServiceNow, Figma, Workday, Adobe and Snowflake, arguing that these companies have shown strong potential to monetize AI.
ServiceNow closed 6.5% higher on Wednesday.
The move reflects a growing shift in investor sentiment toward traditional software companies, which have spent much of the year under pressure from concerns that AI could disrupt their business models and make some software products redundant.
Instead, investors are increasingly betting that companies with deep customer relationships, proprietary data and established enterprise workflows could use AI to expand their products and generate new revenue.
That view helped lift Figma, Workday and Adobe by between 3% and 4% on Wednesday, while the iShares Expanded Tech-Software Sector ETF gained 1%.
AI could become a growth driver
Bank of America analyst Tal Liani raised his price target for ServiceNow to $150 from $130 while reiterating a Buy rating.
Liani said ServiceNow is well positioned to benefit from the development of agentic AI, in part because the company has access to historical data and context surrounding how its customers operate their businesses.
ServiceNow’s platform helps companies manage workflows ranging from employee onboarding and human resources to other internal business processes.
That gives the company insight into the way organizations perform tasks and make decisions.
Liani believes that knowledge could give ServiceNow an advantage as businesses deploy AI agents capable of performing increasingly complex tasks.
He also pointed to the company’s second-quarter performance, noting that ServiceNow exceeded Wall Street expectations for current remaining performance obligations and subscription revenue growth.
Bank of America also raised its targets for several other software companies, including Figma, Workday, Adobe and Snowflake, although Liani said he remains selective about the sector.
Figma was raised to $33 from $30, Workday to $205 from $140, Adobe to $220 from $190, Amplitude from $12 to $14, Snowflake from $330 to $395, among others.
OpenAI growth concerns ease disruption fears
Another factor supporting software stocks is a growing sense that the threat from AI may not be as immediate as investors had feared.
Raymond James analyst Adam Tindle told MarketWatch that recent data points from AI companies such as OpenAI have been “mixed”, potentially reducing the pressure on traditional software providers.
The Wall Street Journal reported on Tuesday that OpenAI’s revenue rose to $6.7 billion in the three months ended in June, up 18% from the first quarter, while its operating loss widened to $12.3 billion from $9.3 billion.
The figures reportedly disappointed some investors. CNBC also reported on Wednesday that OpenAI CFO Sarah Friar told employees during an all-hands meeting that the company’s revenue run rate was up 35% quarter to date.
OpenAI declined to comment.
Tindle said the developments could reduce the “existential perceived threat” that AI could eliminate software-as-a-service businesses such as ServiceNow.
Investors see software as part of AI’s next phase
The broader change in sentiment may be more important than any single company’s share-price move, Benchmark analyst Yi Fu Lee told MarketWatch.
“What is changing now is that the market is beginning to see improving conviction in the underlying fundamentals and the growing realization that software is becoming a beneficiary of enterprise-AI deployment rather than a victim of AI disruption,” he said.
Lee named ServiceNow as his top large-cap software pick, arguing that investors are increasingly rewarding companies with evidence of AI adoption, customer spending and monetization.
“What feels different today is that investors are rewarding companies that are showing tangible evidence of AI adoption, customer spending and monetization.”
Cybersecurity is also becoming an increasingly important part of ServiceNow’s investment story.
Lee highlighted the company’s cybersecurity strategy under Yevgeny Dibrov, who leads its security efforts.
ServiceNow’s security and risk business crossed $1 billion in annual contract value last year, providing another potential source of growth as companies seek to manage the security risks created by expanding AI adoption.
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