Summary
Goldman Sachs' coverage of application software shows the median company is down 38% year-to-date in 2026 despite two interim rebounds. The firm sees signs of operational and product-level progress at several incumbents, but argues that a sustained rally is unlikely in the near term absent evidence that AI-related revenue truly expands overall growth rather than reallocating existing budgets.
Goldman Sachs analyst Gabriela Borges reviewed price action across the group and highlighted two discrete recoveries this year. The first was a 14% rise between Feb. 23 and March 6. The second was a 22% rebound beginning April 10 and lasting through mid-May. Even with those moves, Borges concluded that "the sector is likely to be range-bound over at least the next several months."
The note calls out operational momentum at several established vendors. Goldman cited leadership changes at Klaviyo, Workday and Adobe, and noted early-stage product refinements underway at ServiceNow and Salesforce. The bank described those developments as constructive but insufficient by themselves to underpin a broad, durable market advance.
Goldman puts particular emphasis on the source of potential AI-derived growth. The firm framed the central question this way: will artificial intelligence revenue be additive to WholeCo growth or will it simply displace existing software spend? As the bank stated, "AI disclosures will only be received positively if investors can see that this revenue pool is additive to WholeCo growth."
On timing, Goldman observed that several companies have signaled that monetization of AI initiatives will take longer than their initial product rollouts imply. The bank expects more consistent AI-driven outperformance to be a 2027 event, noting that many monetization timelines extend 12 to 18 months beyond current AI product launches.
Valuation remains a conditional consideration. Goldman wrote that "valuation alone is not a reason to buy the stocks; but valuation coupled with improving fundamentals is." Within its coverage, the bank flagged Microsoft and ServiceNow as idiosyncratic opportunities, while warning that a new cohort of value-focused software investors will likely require visible, positive fundamental catalysts before becoming constructive.
Market context
The note frames the near-term outlook as cautious: price rebounds have occurred, but Goldman expects the group to trade in a range until clearer signs of additive AI revenue and sustained fundamental improvements emerge.