Milestone releases software industry financial report season's top choice list: Cloudflare (NET.US), ServiceNow (NOW.US), and Atlassian (TEAM.US) are the most worthwhile to hold.

As the first quarter financial report season of 2026 kicks off, Mizuho Securities released a research report stating that despite recent significant valuation corrections in the software industry due to market fluctuations, the risk-return ratio has shown excellent investment attractiveness. Cloudflare (NET.US), ServiceNow (NOW.US), and Atlassian (TEAM.US) are identified by the institution as the most worth-holding software stocks. Mizuho's industry research shows that top software companies continue to demonstrate strong consumer application performance. However, most of these stocks continue to face significant pressure due to concerns about the disruptive impact of artificial intelligence. The analysis team led by Gregg Moskowitz pointed out in an investor report released on Tuesday: "Since February 2025, our coverage portfolio of application software has significantly underperformed the infrastructure software portfolio. The current median performance of SaaS is trailing by a staggering approximately 40 percentage points, with only 7 percentage points coming from adjustments to the market consensus expectations for the 2026 fiscal year. We also note that the lag in cumulative SaaS performance has improved from trailing by 48 percentage points in the previous quarter, but this 'improvement' actually stems from increased concerns among infrastructure companies about the disruptive impact of artificial intelligence. Similarly, the cybersecurity field, unexpectedly, is no longer seen as a safe haven due to companies like Claude Code Security, Codex Security, and the newly emerging Mythos." Over the past year, the average decline of application software stocks covered by Mizuho was 61%, infrastructure software stocks showed an average increase of 1%, and cybersecurity stocks had an average decline of 22%. Moskowitz stated: "From a valuation perspective, the enterprise value-to-sales multiple for the next 12 months is currently 40% lower than the three-year average. We believe the risk-return over the next 12 months is quite attractive, but we also believe that a higher level of uncertainty may bring unusual challenges and an exceptionally rocky development path." Cloudflare, ServiceNow, and Atlassian are identified by Mizuho as the most worth-holding software stocks in this financial reporting season. Moskowitz stated: "Our research on Cloudflare results in another positive outlook. We fully expect to see another quarter of strong revenue outperformance and continuous revenue acceleration growth for the fourth consecutive quarter. Additionally, we believe that the significant 13% drop in Cloudflare's stock price since the announcement of Claude Managed Agents last Tuesday has been excessive." Mizuho Securities maintained their "outperforming the market" rating for the stock but lowered the target price from $255 to $235. In addition, Moskowitz also mentioned: "The first-quarter research results for ServiceNow show that transaction activity is better than expected. More encouragingly, the momentum of growth in the Pro Plus user group remains strong. Additionally, ServiceNow's intelligent AI solutions (through the auxiliary package) are gradually gaining momentum in the channel, although still in the early stages in this area. Overall, we expect the current remaining performance obligation (cRPO) for the first quarter of ServiceNow to achieve strong outperformance relative to the 20% year-over-year growth guidance when calculated at fixed exchange rates." Mizuho Securities maintained their "outperforming the market" rating for ServiceNow but lowered the target price from $190 to $150. Lastly, Atlassian also maintained their "outperforming the market" rating with a target price lowered from $185 to $145. "Importantly, considering the significant decline in partner profit margins implemented months ago (leading to the inability of this quarter's channel research to fully reflect demand trends), we believe this will very strong performance," Moskowitz added, "More specifically, we expect subscription revenue to achieve significant acceleration growth for the second consecutive quarter." It is worth noting that despite the optimistic outlook on the fundamentals of the above-mentioned companies, Mizuho also lowered the target prices for several software giants including Microsoft Corporation (MSFT.US), Palantir (PLTR.US), Datadog (DDOG.US), and Check Point (CHKP.US) due to cautious considerations of the macroeconomic environment and overall valuation framework reset. Specifically: Check Point was lowered from $205 to $165, Microsoft Corporation from $620 to $515, Palantir from $195 to $185, and Datadog from $170 to $145.