UBS analysts have identified five software stocks trading at attractive valuations following a sharp derating across the sector. The bank's research highlights that software stocks are currently 6.1 standard deviations oversold, marking a record decoupling from earnings momentum despite ranking fourth globally on that metric.

According to UBS strategist Andrew Garthwaite, the current environment shows software is approximately 40% undervalued on the bank's Market Narrative model, with price-to-earnings premiums compressed to just 18% compared to a historical average of 52%. The firm notes that these valuation levels have historically coincided with sector outperformance 67% of the time over a one-year horizon, though free cash flow yields remain generally unimpressive.

UBS recommends investors discriminate rather than buy the sector broadly, favoring U.S. names over European counterparts. The bank specifically highlighted stocks that are cheap on HOLT, have P/E ratios below their historical norms, and show positive earnings revisions. While UBS's U.S. teams prefer infrastructure and data-exposed companies alongside cybersecurity names, they caution that a weaker dollar could negatively impact European software valuations.