Why AI Stocks Are Creating the Best Buying Opportunity in Years

The software industry is experiencing what many investors would call a panic, but savvy market participants recognize it as something far different. The S&P North American Technology Software Index, tracking 111 major software companies, has tumbled 30% from its September peak—marking official bear market territory. At the heart of this decline sits one concern: artificial intelligence and its potential to disrupt existing software products and business models.

Yet industry leaders are pushing back against this narrative. Nvidia CEO Jensen Huang recently characterized the market’s reaction as fundamentally “illogical,” arguing that software companies with depressed valuations are being unfairly punished. “There’s a whole bunch of software companies whose stock prices are under pressure because somehow AI is going to replace them. It is the most illogical thing in the world,” he stated at a recent event. This disconnect between market sentiment and business fundamentals has created compelling entry points in several AI stocks—particularly for investors with patience and conviction.

Understanding the Market Dislocation

The software selloff accelerated dramatically this year when AI assistants began demonstrating real productivity gains. The concern wasn’t theoretical—it was grounded in tangible proof of concept. Anthropic’s release of conversational AI tools capable of automating workflows in sales, finance, marketing, and legal departments showed that AI disruption was real. However, what the market failed to recognize is a critical distinction: AI isn’t replacing software companies—it’s making their products dramatically more valuable.

Major Wall Street analysts and research firms increasingly view current valuations as attractive. Microsoft trades at just 26 times adjusted earnings with expectations for 15% annual earnings growth through fiscal 2027. ServiceNow commands 29 times earnings with projected 18% growth over the next year, expanding to 19% annually through 2027. These multiples appear reasonable given growth trajectories, yet the stocks remain deeply discounted from recent highs.

Microsoft: Where Enterprise AI Adoption Is Accelerating

Microsoft stands as the primary beneficiary of enterprise-wide AI implementation. The company has embedded generative AI capabilities throughout its software suite, fundamentally enhancing how businesses operate. Most notably, paid seats for Microsoft 365 Copilot surged 160% in the December quarter—a testament to genuine customer demand for AI-powered productivity tools, not speculative hype.

The opportunity extends beyond productivity applications. Azure continues capturing market share in cloud computing, reaching 21% of cloud infrastructure and platform services spending (up from 20% in the September quarter). This expansion reflects two powerful tailwinds: first, the massive infrastructure buildouts required for AI applications demand significant compute resources; second, Azure’s exclusive partnership with OpenAI—providing access to the latest large language models powering ChatGPT and other advanced tools—creates a decisive competitive advantage.

Hybrid cloud computing represents another structural advantage. Morningstar analyst Dan Romanoff notes that Azure’s ability to allow customers to seamlessly move select workloads to the cloud while maintaining hybrid environments creates switching costs that benefit long-term market share. Wall Street’s median price target of $600 per share implies 50% upside from current levels, suggesting the market will eventually price in these AI stock fundamentals more fairly.

ServiceNow: Positioning for Autonomous Enterprise Operations

ServiceNow exemplifies how AI stocks can transform entire industries rather than be threatened by them. The company dominates mission-critical IT software segments—asset management, operations management, and service management—by providing tools that automate complex enterprise workflows. Recent validation came from Gartner, which recognized ServiceNow as a leader in artificial intelligence applications for IT service management.

The distinguishing factor is ServiceNow’s agentic AI capabilities, which demonstrate semi-autonomous behavior. According to Gartner’s assessment, ServiceNow “stands out as one of the few providers able to demonstrate semiautonomous behavior through its agentic AI. Its AI Agent Studio allows for creation of supervised and autonomous agents with transparent reasoning explanations.” This technology positions ServiceNow at the frontier of enterprise automation—precisely where customer investments are accelerating.

Financial results validate the thesis. ServiceNow reported fourth-quarter revenue of $3.5 billion (20% growth), with non-GAAP operating margins expanding 150 basis points to 31% and earnings per share increasing 26% to $0.92. CEO Bill McDermott’s statement captured the positioning clearly: “There is no AI company in the enterprise better positioned for sustainable, profitable revenue growth than ServiceNow.” With the stock down 52% from record highs, analysts’ median target of $185 per share implies an 83% upside opportunity.

The Investment Thesis for AI Stocks Right Now

The current market environment presents a rare alignment: best-in-class AI stocks trading at depressed valuations while fundamental business strength remains intact. Both Microsoft and ServiceNow have demonstrated that AI integration enhances rather than threatens their core value propositions. As enterprise adoption of AI tools accelerates throughout 2026 and beyond, the gap between current valuations and justified valuations should narrow substantially.

For investors seeking exposure to the AI transformation at reasonable prices, this correction offers a strategic entry point into proven leaders—not speculative bets on unproven technologies, but established AI stocks with clear paths to significant recovery.