AI software stocks rally up to 8% as investor confidence returns

Application-software stocks surged Monday, with ServiceNow Inc. posting its best day in over a year, signaling a potential revival for a sector beaten down by fears of artificial intelligence disruption. The rally was broad, with design-software firm Figma Inc. up 5%, while Salesforce Inc. and Adobe Inc. both gained more than 3%.

"While AI is disrupting the software landscape, we think [ServiceNow] stands to benefit from, rather than be replaced by, new AI solutions," Bank of America analyst Tal Liani said in a note reinstating coverage with a buy rating.

Liani set a $130 price target on ServiceNow, which had seen its stock fall 34% year-to-date on concerns AI would erode its business. The stock rose as much as 8% and closed up 5% Monday. The optimism follows a strong earnings report from Figma last week, which has sent its shares up 14% since Thursday. The company revealed that 75% of its heavy enterprise users were purchasing additional credits to use its new AI features.

The rally suggests a shift in investor perception, from viewing AI as a replacement threat to seeing it as a significant revenue driver. This renewed confidence is reflected in the iShares Expanded Tech-Software Sector ETF (IGV), which has gained nearly 7% in the past month, potentially drawing capital back into high-growth software names.

The sector's turnaround was sparked by ServiceNow. Just weeks ago, its disappointing earnings dragged down software stocks amid concerns over customer spending. However, BofA's Liani now argues the company is "uniquely positioned" to provide compliance and governance for AI agents, a mission-critical role in large organizations. This view, combined with an attractive valuation after the selloff, powered the stock's best performance since April 2025.

Figma Proves AI Monetization Thesis

Further bolstering the bull case is Figma. The design platform successfully demonstrated a path to AI monetization, a key question that has weighed on the entire application software space. By implementing a usage-based credit system for its AI tools, Figma has encouraged its most active enterprise clients to increase their spending, providing a tangible model for how other SaaS companies might price and sell their own AI features. The market's positive reaction, lifting the stock 14% in two sessions, highlights investor appetite for companies with a clear AI revenue strategy.

The positive sentiment extended across the sector. Datadog Inc. rose 2% to a new stock high, and the broader IGV software ETF climbed 1.5% on the day, building on a nearly 7% gain over the past month. This indicates that investors are looking past initial fears and are beginning to reward software companies that are effectively integrating and selling AI capabilities.

This article is for informational purposes only and does not constitute investment advice.