Investment banks and research teams this week moved to re-evaluate companies they view as either beneficiaries or victims of the market's shifting interpretation of artificial intelligence (AI) risk. Across a range of notes, analysts argued that recent price moves have more to do with changes in sentiment and terminal-multiple expectations than with deterioration in near-term fundamentals, and they identified specific names where they see buying opportunities or improving fundamentals.
Citi sees buying opportunities after software pullback
Citi analysts, led by Drew Pettit, said the recent correction in software equities has opened a more constructive entry point for investors. The bank's note framed the selloff as one that has compressed terminal multiples in response to worries about AI-related disruption, even as consensus earnings-per-share (EPS) estimates for 2025 through 2027 have moved higher over the past six months.
To identify attractive candidates, Citi screened an eligible universe of roughly 90 software names for companies whose shares had fallen at least 10% over the last month but where 2025-2027 EPS estimates had been revised upward in the previous six months. The screen also emphasized stocks where implied terminal multiples have declined and currently sit below forward price-to-earnings ratios, a sign that some long-term valuation risk has been priced in.
Out of that universe, the screening process flagged 22 names. The list is tilted toward Buy-rated stocks, the bank said, and includes firms its analysts believe are "well-positioning for any AI scenario." Specific examples named by Citi include Dynatrace (NYSE:DT), Microsoft (NASDAQ:MSFT), Cloudflare (NYSE:NET) and Rubrik (NYSE:RBRK). The analysts also noted Palantir Technologies among buy-rated companies they view as relative winners in a bear case centered on AI disruption.
Citi argued that the market reaction has centered on "punishing terminal multiples" due to uncertainty around AI-related business model risks, rather than a worsening of short-term fundamentals. The bank estimated that roughly a 10% reduction in terminal multiples for the S&P 500 Software & Services group is already reflected in current prices, while only a portion of a deeper 20% cut is factored in. Even under scenarios in which terminal multiples decline 10% to 20%, the analysts said implied growth expectations are not demanding, implying that positive earnings revisions should be meaningful to relative stock performance.
In Citi's view, a more volatile, fully valued bull market will make earnings momentum particularly important. Positive revisions for software names could act as a key fundamental catalyst to attract investors back to stocks that have been sold down with the broader sector.
Barclays upgrades Analog Devices on industrial inflection
Barclays upgraded Analog Devices (NASDAQ:ADI) to Overweight, arguing the chipmaker is well positioned to benefit from a gradual recovery in industrial demand and that it offers "the cleanest operating model and balance sheet" among its peers. Analyst Tom O'Malley said purchasing-manager indexes have finally delivered the PMI inflection required for a broader industrial recovery, though he cautioned that the prior downturn left lingering effects.
O'Malley highlighted that distributor inventories have largely normalized, but company-level inventories remain historically high, which has weighed on loadings, utilization and margins across the group. Within that backdrop, Barclays sees early growth potential tied to data-center trends but remains selective across analog semiconductor names. The bank believes ADI has the most leverage to industrial exposure and therefore represents a preferable way to gain exposure to any improvement in the industrial cycle.
Barclays strategists warn of indiscriminate selling tied to AI narratives
Separately, Barclays strategists led by Emmanuel Cau warned clients that the rapid, sentiment-driven selloff targeting companies perceived as exposed to AI could persist. The strategists said broader equity markets have so far shown relative resilience, but anxiety over AI disruption is producing "choppiness and more dispersion across sectors."
They argued that conventional investment labels like cyclicals and defensives are becoming less relevant as investors increasingly sort equities by perceived AI immunity or vulnerability. Hard-asset and old-economy groups - including commodities, industrials, materials, healthcare and consumer goods - are being treated as AI-immune. By contrast, parts of consumer and commercial services and technology-linked industries are viewed as vulnerable.
Barclays noted the roster of perceived AI losers has broadened quickly: the theme began with media and business services, extended into software and is now touching financial services, logistics and commercial real estate (CRE). Within these categories, selling has often been indiscriminate and narrative-driven, despite resilient EPS momentum. The strategists said investors are increasingly focused on "who is next," showing "no mercy for anything remotely seen as an AI loser." Fears of potential business failures are beginning to spill into credit markets and are pressuring banks that had been considered AI winners. In the near term, the strategists allowed that momentum may be unstoppable with no clear catalyst to halt the rout, while suggesting the dislocation could create longer-term opportunities.
Jefferies flags AppLovin as a contrarian buy after sharp pullback
Jefferies described marketing-platform operator AppLovin (NASDAQ:APP) as presenting "a great buying opportunity" after a steep decline in its shares. The broker reiterated a Buy rating and maintained an $860 price target, noting the stock was down roughly 37% year to date despite what Jefferies characterized as a strong growth profile.
Analysts led by James Heaney argue that short-term concerns have created a significant gap between fundamentals and valuation. Jefferies expects more than 50% top-line growth, projects AppLovin trading at 15 times its FY27 EBITDA and models an approximate 40% five-year compound annual growth rate, metrics the bank said more than adequately price in the risks the market is fretting over.
The team singled out three market worries that they believe have weighed disproportionately on the shares: CloudX, Meta Audience Network and Google Genie. On CloudX, Jefferies expects "near zero impact," noting that no standalone mediation platform has proven successful. Regarding Meta's Audience Network, analysts concede potential pressure from increased bidding on iOS traffic but see limited evidence that it is materially affecting AppLovin. On Google Genie and the broader question of generative AI in gaming, Jefferies expects new tools to be integrated into existing engines, which could enhance AppLovin's distribution advantages.
At 15 times FY27 EBITDA on Jefferies' model, and given the high projected top-line CAGR, the broker contends the current valuation adequately compensates for risks. With underlying fundamentals largely unchanged since the start of the year, Jefferies said the recent pullback offers an opportunity to own a distinctive growth asset at a compelling entry point.
Deutsche Bank upgrades BorgWarner after pivot into AI data-center infrastructure
Deutsche Bank moved BorgWarner from Hold to Buy, arguing the auto-parts supplier's strategic move into AI data-center infrastructure could materially alter its medium- to long-term growth trajectory. Central to the bank's view is BorgWarner's agreement with TurboCell to develop a modular turbine-generator system.
Deutsche Bank estimated the initial phase of that program could generate more than $300 million of revenue in 2027 and portrayed it as the opening step in a broader ramp. At a full 2-gigawatt buildout, the analysts said revenue potential "clearly can be substantially larger," framing the opportunity as a multi-year secular growth driver. The bank also pointed to the profitability profile of the new business, saying the revenue should begin at mid-teens margins, implying that the business could be profitable without enormous scale.
The combination of the TurboCell announcement and stronger-than-expected fourth-quarter results pushed BorgWarner's shares up more than 22% on Wednesday. Following these developments, Deutsche raised its rating to Buy and lifted its price target to $82.
What this means for investors
Across the notes, the recurring theme is that investors should distinguish between changes in narrative and changes in fundamentals. Citi's screen attempts to isolate names where terminal multiple compression has already occurred and where positive earnings revisions create a clearer path for price recovery that is not purely reliant on sentiment-driven re-rating. Barclays' actions reflect a view that improving PMI data and normalized distributor inventories are beginning to create selective opportunities in industrial-facing semiconductors. Jefferies and Deutsche, meanwhile, focused on company-specific catalysts: AppLovin's growth profile and BorgWarner's pivot into AI data-center infrastructure.
At the same time, strategists cautioned that narrative-driven selling tied to perceived AI vulnerability can broaden quickly, affecting not just media and software but also financials, logistics and real estate, and could have spillover effects into credit markets. That dynamic suggests the market environment may remain choppy until investors regain clarity on how AI will reshape business models and margins across sectors.
Stocks mentioned in this report include Dynatrace (NYSE:DT), Microsoft (NASDAQ:MSFT), Cloudflare (NYSE:NET), Rubrik (NYSE:RBRK), Palantir Technologies, Analog Devices (NASDAQ:ADI), AppLovin (NASDAQ:APP) and BorgWarner (NYSE:BWA).