Citigroup analysts have pinpointed 22 software stocks they argue are undervalued despite strong earnings potential, with several positioned to weather varied AI adoption scenarios. The list includes industry heavyweight Microsoft alongside Cloudflare and Rubrik, all of which have seen shares drop at least 10% in the past month while maintaining upward revisions to 2025-2027 earnings estimates.

The screening process focused on companies where market pessimism about AI disruption has driven down terminal valuation multiples below forward price-to-earnings ratios. According to analyst Drew Pettit's team, this creates opportunities where stock recovery depends less on speculative sentiment shifts and more on fundamental performance. The bank estimates a 10% reduction in terminal multiples for S&P 500 software firms is already priced in, with only half of a potential 20% cut reflected.

Notable inclusions feature Palantir Technologies as a potential winner in bear-case AI scenarios, alongside Microsoft and cybersecurity firm Rubrik. Citi's analysis suggests the sector’s selloff stems more from fears about AI’s long-term business impacts than weak near-term fundamentals. The bank maintains software companies aren’t facing unrealistic growth expectations even with reduced multiples.

With earnings momentum becoming critical in volatile markets, Citi views positive revisions as a key catalyst for investor returns to the sector. The screen drew from a pool of 90 software companies, favoring those with Buy ratings and clearer paths through AI-driven market shifts.