Citi Research downgraded six application software stocks on Friday, cutting them from Buy to Neutral. The firms affected are Similarweb, Docusign, Autodesk, Nice, CCC Intelligent Solutions, and Veeva Systems. All six stocks fell during Friday trading.
Citi analyst Tyler Radke said the downgrades reflect a lack of near-term catalysts and growing concern that AI is starting to threaten traditional software business models. “We believe most of these are good companies and may be well positioned long-term but don’t have exciting 12-month catalysts,” Radke wrote.
Citi also cut price targets sharply. Docusign was lowered from $99 to $50. Veeva dropped from $291 to $176. Similarweb saw the steepest cut, falling from $8.50 to $3.
Radke warned that privately held AI companies are on track to add over $100 billion in net-new revenue in the coming years. That compares to $50 billion from traditional application software. He also flagged rising software optimization costs and vendor consolidation as near-term risks.
Piper Sandler analyst Billy Fitzsimmons pointed to a separate catalyst pushing software stocks lower. Anthropic announced Claude Managed Agents, a pre-built, configurable agent system designed for long-running and asynchronous tasks.
Fitzsimmons said this raises concerns that Anthropic’s agents will compete directly with those built by established software companies. He expects continued pessimism toward the software sector through at least year-end.
Piper Sandler downgraded names in the sector and said it prefers companies that monetize AI compute directly. It named Microsoft and Oracle as top picks, citing their Azure and Oracle Cloud Infrastructure businesses.
Microsoft trades at a forward price-to-earnings ratio of 20x on 2027 estimates and generates $77.4 billion in levered free cash flow. Despite a 27% decline over the past six months, Piper Sandler considers it undervalued.
CNBC’s Jim Cramer highlighted the growing divide between hardware and software stocks on Thursday. He said the “buy hardware, sell software” trade, which dominated markets earlier in 2026, has returned.
Salesforce fell nearly 3% and Adobe dropped around 4% on Thursday. The IGV software ETF, a key benchmark for the sector, fell more than 4%. CrowdStrike dropped 7.5%, even though it is a cybersecurity company, largely because it is held in the fund.
On the hardware side, Marvell Technology and Intel each gained close to 5%. Corning, which supplies materials for data centers, rose 2.85%.
Cramer said companies supporting AI infrastructure are outperforming while enterprise software is being treated as a declining business. He added that this trend does not appear likely to reverse in the near term.
Piper Sandler also flagged Global-e Online as a preferred name. The company is tied to ecommerce transaction volumes rather than software seat counts, and is guiding to 29% revenue growth this year.
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