Mizuho is pointing to buying opportunities in a small group of software companies as investors head into first-quarter earnings season, even as the sector faces valuation pressure and heightened uncertainty.
In its preview of software earnings, the bank said checks for the quarter were "solid overall," noting that public cloud momentum and consumption patterns were "generally good," and that AI adoption was "very strong." The firm also flagged that demand for cybersecurity products showed a mixed picture.
The research team emphasized that software-as-a-service franchises have shown resilience, despite investor worries that AI-driven disruption has sharply reduced many software companies' valuations. Mizuho quantified the valuation reset, stating that next-twelve-months enterprise-value-to-sales multiples sit roughly 40% below their three-year average.
While the analysts acknowledged a "higher level of unpredictability" and described the near-term outlook as "a particularly rocky path," they judged the current risk-reward profile to be "quite attractive" over the coming twelve months. Against that backdrop, the bank identified three names it prefers into the earnings period: Cloudflare, ServiceNow and Atlassian.
"Our favorite March-ending stocks to own ahead of the print are NET, NOW, and TEAM," the note said.
For Cloudflare, Mizuho reported favorable channel and customer checks and forecasted what it expects to be another quarter of revenue coming in above consensus. The firm characterized a recent roughly 13% pullback in the stock as overdone.
On ServiceNow, the bank described checks as decent and concluded they should allow the company to report solid first-quarter constant-currency cRPO upside versus guidance. Mizuho also highlighted that the stock is trading at about 12 times fiscal-year-2027 estimated free cash flow.
Although checks on Atlassian were mixed, Mizuho noted they compared favorably to some competitor reads. The firm is looking for a second consecutive quarter of meaningful subscription revenue acceleration from Atlassian.
The note also reiterated broader themes the analysts observed: strong AI adoption supporting consumption growth for some cloud and software vendors, resiliency among many SaaS models, and uneven demand within cybersecurity markets.
Separately, a model-driven selection tool under the ProPicks AI banner was referenced in the original note as evaluating ServiceNow against thousands of other companies using more than 100 financial metrics. That tool is described as identifying opportunities based on fundamentals, momentum and valuation.
Key takeaways
- Mizuho sees NET, NOW and TEAM as preferred software plays entering Q1 earnings.
- Public cloud and consumption trends were generally constructive, and AI adoption is a strong demand driver.
- Valuations have materially reset - NTM EV/Sales multiples are about 40% below their three-year average.
Risks and uncertainties
- Elevated unpredictability and a "particularly rocky path" in the near term could keep stock performance volatile - this affects software and cloud sectors.
- Cybersecurity demand remains mixed and could undercut some vendors' revenue trajectories - this specifically impacts cybersecurity-focused businesses within the software sector.
- Valuation compression driven by investor concerns around AI disruption has already reduced multiples and could limit near-term upside until clarity improves - relevant to broadly valued software companies.