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Barclays Sees Short-Term Upside in U.S. Software Stocks Despite AI Uncertainty

Highlights: 

  • Barclays expects the U.S. software sector to post short-term gains this earnings season 
  • AI-related concerns remain, but lower valuations and solid demand support optimism 

Key Facts: 

  • Barclays reiterates Overweight on Salesforce, trims PT to $316 from $347 
  • Salesforce and Elastic flagged as favorable picks with near-term catalysts 

Background 

Barclays said U.S. software stocks could see short-term upside in the ongoing earnings season, even as uncertainty around artificial intelligence (AI) continues to weigh on longer-term sentiment. The bank said resilient end-market demand and lower valuations provide scope for a rebound, even if long-term uncertainties around AI adoption remain.  

In a research note, Barclays analyst Raimo Lenschow said checks indicate strong end demand and that valuation levels are significantly lower. This is unlikely to cure any of the AI-related issues long-term, but it is likely to give us a green bounce in the short term. 

The analyst noted that outside of a few AI-focused outperformers, most software stocks have struggled over the past year. However, with earnings holding up better than expected and sector valuations compressed, Lenschow believes the setup favors a constructive near-term outlook. 

In the current environment, Barclays recommended Salesforce (NYSE: CRM) as a top choice. The bank cited survey data showing strong customer interest in Salesforce’s AI tools and expects the company to deliver a modest earnings beat. A key catalyst will be the Dreamforce conference in October, where Salesforce is anticipated to unveil the next version of its Agentforce platform. Barclays also maintained its Overweight call on the stock but decreased its price target to 316 dollars instead of 347 dollars. 

Elastic (NYSE: ESTC) was also highlighted as well-positioned for upside. Barclays described the company’s guidance under its new CFO as “very conservative,” leaving room for an earnings beat and a raised outlook. The firm’s research pointed to strong momentum in Elastic’s hybrid search projects and adoption of its vector database capabilities, providing confidence in upcoming results. 

Overall, Barclays maintained a positive industry view, arguing that while questions over AI’s long-term impact will continue to influence sentiment, near-term earnings resilience and attractive valuations are likely to drive gains across the software sector this quarter.