Top software application stocks to watch, according to Oppenheimer

Oppenheimer analysts assert that the artificial intelligence transition in software has transitioned from experimentation to a phase where companies must showcase quantifiable returns on investment. While enterprise AI spending remains robust, customers and investors now prioritize business outcomes over mere adoption metrics. AI is increasingly becoming a recurring operating expense, with CFOs scrutinizing investments in tandem with labor costs and demanding demonstrable returns.

Not all software companies are equally equipped to capitalize on AI. According to Oppenheimer, the most favorable positions exist among system-of-record vendors and businesses employing seat-plus-consumption pricing models. These models strike a balance between maintaining loyal customer relationships and being directly impacted by escalating AI utilization, providing a shield against disruption and a clear route to AI-driven growth.

Oppenheimer singles out three software applications stocks as top contenders in the sector: Microsoft, ServiceNow, and Braze. Microsoft has already amassed over $1 billion in revenue linked to AI, demonstrating the company's capacity to generate AI-driven earnings and maintain durable margins. This, in turn, should lead to higher cash and earnings expectations for software companies, fueling valuation expansion across the sector.

ServiceNow enjoys an advantageous position due to its exposure to automation and security tailwinds, having already established an AI business exceeding $1 billion in revenue. Braze, meanwhile, is viewed as a system-of-record for customer engagement, offering profitable growth and a competitive edge rooted in proprietary data, workflow context, deterministic functionality, and enterprise-grade security and governance.

However, the firm warns that AI spending could divert broader software budgets and that margin pressure might endure longer than anticipated.