Bank of America has raised the target prices for 10 software stocks in one go! Workday (WDAY.US) soared 46% to lead the way, as concerns over AI recede and valuation recovery accelerates.

It has been learned that due to the fading concerns in the market that artificial intelligence will disrupt traditional software companies, Bank of America Corp's outlook on the valuation prospects for the software sector is turning optimistic, leading to successive increases in the target prices of 10 software stocks. However, this research report released on August 19 is not a comprehensive buy signal. Analysts at Bank of America, including Tal Liani, Koji Ikeda, and Matt Bullock, have kept their original earnings forecasts and fundamental judgments unchanged. The analysts noted that this round of upgrades more reflects investors' willingness to pay a higher premium for software businesses following strong earnings reports from some infrastructure software companies, as well as an improved sentiment toward large-cap stocks and application software companies. The stocks for which Bank of America has raised their target prices include: ServiceNow (NOW.US), Figma (FIG.US), Workday (WDAY.US), Adobe (ADBE.US), Snowflake (SNOW.US), GitLab (GTLB.US), Amplitude (AMPL.US), Box (BOX.US), Asana (ASAN.US), and Zeta Global (ZETA.US). Nevertheless, Bank of America remains selective in its stock picks, favoring those with higher growth potential and those expected to convert AI applications into actual revenue. ServiceNow: One of Bank of America's top large-cap software picks Bank of America maintains a "Buy" rating on ServiceNow, raising its target price from $130 to $150. At the reported stock price of $119.49, the new target price implies an upside of over 25.5%. This adjustment also reflects an uplift in the overall valuation of the software sector. In the second quarter, ServiceNow's current remaining performance obligation (cRPO) grew by 21.5% year-over-year at constant currency, exceeding the Wall Street expectation of 19.5%; subscription revenue grew by 23% at constant currency, also higher than the market expectation of 21.9%. AI is becoming an important driver of its performance. The report shows that ServiceNow's annualized contract value for AI has surpassed $1 billion, and it is expected to exceed the company's target of $1.5 billion for fiscal year 2026. Bank of America believes that ServiceNow's ability to control enterprise workflow context and historical data gives it a unique advantage in developing agentic AI products aimed at managed, secure enterprise workflows, a strength that should support the company in achieving high single-digit revenue growth and sustained free cash flow expansion. Snowflake: Target price sharply raised by nearly 20% due to AI Snowflake is another key recommendation from Bank of America. The bank has raised its target price from $330 to $395, an increase of nearly 20%, while maintaining a "Buy" rating. At the reported stock price of $325.33, the new target price implies an upside of about 21%. Bank of America analysts express greater confidence in Snowflake's demand health, believing the company can consistently monetize its AI products. The bank expects Snowflake's revenue growth rate for the calendar year 2027 to be around 22%, well above the infrastructure software sector's average of 11%. In terms of free cash flow margins, Bank of America forecasts Snowflake could reach 25%, surpassing the sector average of 18%. Analysts believe the company should enjoy a substantial valuation premium, as they anticipate Snowflake to achieve faster growth and higher profitability. Another long-term positive factor comes from market potential: Bank of America estimates the total addressable market for AI software to be as high as $155 billion. Workday: Target price raised significantly by 46%, but maintains neutral rating Workday is one of the stocks with the largest adjustment this time. Bank of America has significantly raised its target price from $140 to $205, a rise of over 46%. However, the bank maintains a "Neutral" rating. Analysts explain that this elevation primarily reflects the overall valuation multiple expansion of large-cap enterprise software companies as well as a premium due to "acquisition potential." Bank of America believes Workday's market position in human capital management and financial software, a total retention rate of 97%, and strong cash flow generation capability supports higher valuation. The company is also advancing its AI strategy, including the launch of the AI interface and agent platform Sana, along with a consumer-based monetization model, Flex Credits. However, Bank of America is not yet ready to characterize it as a turning point for AI-driven growth. The bank expects Workday's revenue growth rates to gradually slow from 16.4% in fiscal year 2025 to 11.5% in fiscal year 2027, 11.3% in fiscal year 2028, and 10.3% in fiscal year 2029. Analysts believe the risk-return ratio for the stock is broadly balanced. Adobe: Bank of America maintains bearish stance, target price significantly lower than current price Bank of America's target price increase does not apply uniformly to all software stocks. The bank raised Adobe's target price from $190 to $220 but maintains an "Underperform" rating. More importantly, the $220 target price remains significantly below the reported stock price of $263.14, indicating a potential downside of nearly 16%. Bank of America acknowledges Adobe's strong barriers in professional workflows, substantial profit margins, and solid cash flow generation capabilities, but expresses concerns about the impact of AIincluding the lowering of barriers for generating professional content and the rise of more affordable AI-native competitors. The bank points out that Adobes AI priority annual recurring revenue (ARR) accounts for less than 2% of total ARR, failing to drive a meaningful acceleration in overall growth. Bank of America expects Adobe's revenue growth rate to slow from 10.5% in fiscal year 2025 to 8.8% in fiscal year 2027 and 8.7% in fiscal year 2028. Unless there is clearer evidence to suggest standardized AI can reignite growth, Bank of America believes there is a lack of near-term catalysts to upgrade the rating to optimistic. Figma: Focus on AI adoption, Bank of America reiterates "Buy" rating Bank of America also reiterates a "Buy" rating on Figma, raising its target price from $30 to $33. Figma saw a year-over-year revenue growth of 48.2% in the second quarter, with a net dollar retention rate of 136%. The number of customers with annual recurring revenue exceeding $100,000 grew by 46% year-over-year. Another key variable is AI usage ratesBank of America data shows that over 80% of Figma customers with ARR over $10,000 consume AI credits weekly. Analysts believe Figma's increasingly rich AI capabilities are likely to help it extend beyond traditional designer user groups into software development workflows, ultimately driving growth in both seats and consumption. Summary of target price adjustments: Bank of America also confirmed "Buy" ratings for Box, Asana, and Zeta, while maintaining "Neutral" ratings for GitLab and Amplitude. Concerns about AI are fading, but not uniformly across the board Software stocks have long faced a fundamental question: does generative AI expand their market space, or does it erode the profitability foundations of subscription-based software companiescompanies that are the bedrock of industry profits? Bank of America's recent valuation re-evaluations indicate that investors are less inclined to price in the worst-case scenario for the entire industry. However, the stark contrast in the bank's stance toward ServiceNow, Snowflake, and Adobe reveals an important distinction: while concerns over AI's impact on software stocks may be subsiding, Bank of America does not believe that every software stock will emerge as a winner.