Morningstar Says Software Stocks Haven’t Been Below This Price in 3 Years. These 3 Look Like Great Deals.
The ongoing threat that Artificial Intelligence (AI) could disrupt software companies has left many investors wondering if previous technology leaders can succeed in the age of AI. And that leaves some tech stocks looking like really good deals right now.
Morningstar analyst Dan Romanoff recently said, “Software firms are the most undervalued of the last three years” and face high uncertainty. Some investors think that software companies are done and that AI will replace everything they do. That’s not true, especially when it comes to business software.
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Three companies that look like good deals — and could benefit because of AI — there is Microsoft (NASDAQ: MSFT), Salesforce (NYSE: CRM)again Alphabets (NASDAQ: GOOGL) (NASDAQ: GOOG). Here’s why these stocks should be bought now.
If there’s one software company investors shouldn’t worry about in the age of AI, it’s Microsoft. The company quickly adapted to artificial intelligence and was one of the first investors in OpenAI.
Microsoft owns about 27% of OpenAI, which could be active when the company goes public later this year, and was quick to use ChatGPT models in its Copilot service early on. That move helped Microsoft stay ahead of the AI boom, and proved to many of its business customers that maintaining a Microsoft 365 subscription is still a must-have in the age of AI.
In addition, Microsoft has changed the way to use new AI models for its services. The company recently started offering Claude as part of its Copilot service, and its commercial cloud users have access to it automatically. This shows Microsoft’s ability to adapt and use emerging AI models as they emerge, instead of just betting on one horse.
And finally, Microsoft is also working on its AI models, aiming to improve “intelligence” by introducing new models over the next five years.
The tech sector’s average price-to-earnings ratio is just over 43, which makes Microsoft’s trailing P/E ratio of 26.5 look like a steal right now.
Tech investors shunned Salesforce last year, sending its shares down nearly 20%. But their pessimism is largely based on the fear that AI will disrupt the company, which is not evident in the case.
Assume the company’s sales rose 12% to $11.2 billion and earnings per share jumped 37% to $3.81 in the fourth quarter of 2026, both beating analysts’ consensus estimates.
Importantly, Salesforce continues to advance with its AI strategy. Since launching its AI services, the company said it has completed 2.4 billion AI agents — meaning instances where customers use Agentforce to deliver real work. In addition, the company’s Agentforce AI service exceeded $800 million in annual recurring revenue, up 169% from the year-ago quarter.
Salesforce has more than 150,000 customers, most of the world’s largest companies rely on the customer relationship management application. That reach won’t be easily eroded, even by the new advanced AI models. Salesforce software is built directly in customer management, and its customers will not be able to break away from Salesforce just because a new AI appears; switching costs are very high when you are handling such important customer data.
Salesforce stock currently has a trailing P/E ratio of 24, making this leading business software company highly profitable relative to the rest of the technology industry.
Early worries that Alphabet and its Google services would be left in the dust by AI companies now seem like an overreaction. The company’s Google Gemini is gaining real traction as an active competitor to ChatGPT, and Claude and already has more than 750 million monthly active users.
And Gemini is about to get a big boost from users if an apple is launching a new version of Siri later this year, with Gemini reportedly serving as the base AI model. This not only shows how competitive Gemini can be in this space – billions of devices could use the new Siri – but Alphabet will reportedly receive $1 billion a year from Apple.
Further evidence of Alphabet’s AI success comes from the company’s Google Cloud sales, which are home to the company’s AI revenue and rose 48% in the fourth quarter to $17.7 billion. With Alphabet investing up to $185 billion in capital expenditures this year, mostly in AI data center infrastructure, more advanced AI models and more AI sales are likely on the way.
And since Alphabet shares have a trailing P/E ratio of just over 30 right now, the stock looks very attractive compared to the rest of the tech industry.
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Chris Neiger has positions in Apple. The Motley Fool has positions and recommends Alphabet, Apple, Microsoft, and Salesforce. The Motley Fool has a policy of disclosure.
Morningstar Says Software Stocks Haven’t Been Below This Price in 3 Years. These 3 Look Like Great Deals. was first published by The Motley Fool
