Wells Fargo released a preview of first-quarter earnings for the U.S. software sector that underscores growing investor selectivity and a strong emphasis on AI defensibility. The bank said it expects sentiment in Q1 to resemble what was seen in Q4, with market participants increasingly discriminating among software names and privileging those viewed as beneficiaries of AI investment.
In its outlook, Wells Fargo highlighted Datadog (NASDAQ:DDOG) and HubSpot (NYSE:HUBS) as names it favors heading into first-quarter reporting. The bank said software-as-a-service companies broadly are facing elevated scrutiny from investors, who are asking tougher questions about long-term durability as enterprise AI spending ramps up.
Wells Fargo reported that conversations with investors revealed heightened uncertainty across the sector, and that many market participants are placing renewed emphasis on which companies can sustain growth as AI-related spend increases. According to the bank, current market positioning is skewed toward clear AI beneficiaries in the near term, where firms can more readily quell concerns about AI-driven displacement and restore confidence in their growth profiles.
The preview identifies two principal levers likely to shape investor responses to upcoming earnings prints: the credibility of management guidance and the presence of concrete AI-related metrics or data points. Wells Fargo said those elements will be central to how investors react to first-quarter results.
On Datadog, Wells Fargo noted a more constructive investor tone tied to potential upside from a new AI lab and remarked that roughly a 3% beat would be reasonable to maintain Datadog’s current growth trajectory. The bank also observed that Datadog’s API is being used in Claude Code, while cautioning that the extent of that usage remains difficult to quantify.
Regarding HubSpot, Wells Fargo suggested that about a 2.5 percentage point revenue beat could substantiate a calculated reacceleration in customer metrics, while cautioning that any full-year guide increase is likely to be smaller than the boosts seen in recent quarters.
Separately, Wells Fargo said checks with Anthropic customers painted a picture of some enterprises adopting almost uncapped approaches to AI spend, with companies encouraged by the potential return on investment. Importantly, those checks indicated that rapid growth in AI investments was not crowding out other categories of enterprise spending, the bank reported.
Overall, Wells Fargo’s preview frames Q1 as a period of selective investor behavior, where clarity on AI traction and reliable guidance will be decisive for software names. The bank’s preferences for Datadog and HubSpot reflect this emphasis on AI defensibility and guide credibility as key near-term catalysts.