Software has been one of 2025’s weakest pockets of tech. The S&P 500 is up 16.5% this year, while the software ETF $IGV ( ▲ 1.4% ) has gained only about 4%. Investors have been worried about AI disruption, higher rates, and shifting money into semis viewed as clearer winners. Baird analysts say the pullback has created real bargains.
Cloud and Collaboration Picks
Axon $AXON ( ▲ 0.06% ) was a star in 2024 but is down 10% in 2025. Its 71x forward P/E does not look cheap, but Baird argues its 30 percent growth and strong margins justify a premium.
Zoom $ZM ( ▲ 1.24% ) and Twilio $TWLO ( ▲ 1.68% ) also make the list after screening with some of the lowest free cash flow multiples. Zoom trades at about 9 times estimated 2027 free cash flow, and Twilio trades at roughly 18 times. Baird expects improving growth to draw more investor interest in 2026.
Cybersecurity on Clearance
Cyber stocks have taken the deepest valuation hit this year. Baird recommends sticking with high quality large caps like Zscaler $ZS ( ▲ 0.34% ) and Palo Alto Networks $PANW ( ▲ 1.62% ) . Smaller names like Rubrik $RBRK ( ▲ 22.49% ) and Okta $OKTA ( ▼ 0.01% ) also offer meaningful valuation support. Rubrik trades at roughly 6.8 times 2027 sales, while Okta trades at about 3.7 times.
SaaS Dislocation
Some investors think AI makes it easier to replicate the functions of SaaS companies, although analysts say there is no consensus on how this changes the narrative. Baird sees the most mispricing in Klaviyo $KVYO ( ▼ 1.63% ) , Monday. com $MNDY ( ▲ 1.41% ) , ServiceNow $NOW ( ▲ 1.85% ) , Atlassian $TEAM ( ▲ 1.78% ) , and Tyler Technologies $TYL ( ▲ 0.58% ) . Adoption of enterprise AI remains early, which helps explain the uncertainty.
Vertical Software Standouts
Baird also highlights stocks with improving estimates and stronger risk and reward profiles. Those names include Autodesk $ADSK ( ▲ 0.29% ) , which focuses on manufacturing and design software, Q2 Holdings $QTWO ( ▲ 1.2% ) , which builds fintech tools, Procore $PCOR ( ▲ 1.02% ) , which sells construction software, and Veeva Systems $VEEV ( ▼ 0.12% ), which is centered on the healthcare sector.