Jefferies has re-evaluated the application software universe after the group materially lagged broader software performance, and identified a narrow set of companies it believes are best positioned for the AI-driven transition.
Analysts led by Brent Thill said they are "taking a fresh look at current levels considering both our new AI Risk Matrix and idiosyncratic fundamentals/catalysts." The review comes after many application software stocks fell sharply year to date, with individual names down roughly 30-55% compared with the IGV ETF's 24% decline.
Jefferies' coverage team applied a variety of AI-related risk vectors in its reassessment, including customer mix, platform positioning, data advantages and pricing models. The firm cautioned that the market is facing "further risk of AI disruption," and that this backdrop warranted a more selective stance across the apps sector.
As part of the reset, the broker moved several previously covered app names to Hold. Workday (NASDAQ:WDAY), DocuSign (NASDAQ:DOCU), Monday.com (NASDAQ:MNDY) and Freshworks (NASDAQ:FRSH) were each placed on Hold because of persistent risks and softer investor sentiment. Despite those moves, Jefferies emphasized that software as a category remains structurally resilient, adding: "Software will survive - business IP is embedded inside."
Within the same framework, Jefferies highlighted four preferred stocks it believes combine durable business models and favorable internal AI adoption:
- Intuit (NASDAQ:INTU) - Labeled the firm's "top large-cap pick in apps," Intuit was highlighted for its application of roughly 80 different AI model variations to more than 40 years of customer data across about 100 million users. The analysts emphasized Intuit's "large user base and data moat" as supportive under the AI risk framework.
- Procore Technologies (NYSE:PCOR) - Cited as an "attractive mid-cap, vertical story with revenue reaccel on the horizon as macro eases," Procore's vertical positioning and platform depth were singled out as differentiators as the market reassesses AI-related risks.
- Atlassian (NASDAQ:TEAM) - Seen as benefiting from a link between AI-generated code and demand for IT collaboration tools, the analysts noted that "more AI-generated code = more need for IT collab," and described Atlassian as the "fastest growing app name with catalysts for 20+% MT growth."
- Salesforce (NYSE:CRM) - Viewed by Jefferies as "best-positioned among apps vendors to deliver on AI agents," with the firm adding that "success will lead to overall acceleration." The analysts also argued that CRM's "highly customized workflows and large footprint within the enterprise as a system of record make it difficult to be displaced."
Jefferies' approach blends an industry-wide assessment of AI disruption risk with company-level fundamentals and catalysts. The broker's repositioning to Hold on several names, alongside the selection of four preferred stocks, reflects an intent to prioritize businesses that combine defensible data assets, platform depth and clear AI integration paths.
The review underscores the broker's view that while the sector faces significant re-pricing and AI-related uncertainty, certain companies may be better insulated thanks to their customer scale, embedded intellectual property and targeted AI adoption strategies.