Barclays has downgraded HubSpot and Monday.com to Equal Weight from Overweight as investors head into third-quarter earnings, citing a developing split among software companies in how AI is translating into revenue growth.
Analyst Raimo Lenschow wrote that the coming quarter should show "more differentiation" across the software sector, with AI-driven expansion already evident at some firms while remaining nascent at others. He described his expectation for a relatively benign earnings season, saying company checks are broadly solid and that easier federal comparisons - helped by DOGE-related cuts that benefited names such as ServiceNow - should ease comparisons for some providers.
Lenschow singled out DigitalOcean and Datadog as examples where AI-fueled growth should be "clearly visible," named Microsoft as showing emerging AI momentum, and said HubSpot and Monday.com have yet to show visible AI-driven acceleration.
Microsoft and cloud expectations
The analyst expressed particular support for Microsoft heading into its fiscal first-quarter report. Lenschow expects Azure revenue to grow in the mid-40% range. He also forecasts Office to deliver underlying growth in the high teens - specifically, 17% adjusted and in constant currency - driven by Copilot seat expansion and the consumption pricing Microsoft rolled out in July. He warned, however, that Microsoft’s new accounting structure could introduce some additional noise into reported results.
AI infrastructure: pricing, capacity and margins
On the AI infrastructure front, Lenschow noted significant price increases and capacity additions. DigitalOcean and CoreWeave raised pricing in the quarter - by roughly 30% and 25% respectively - reflecting demand that continues to exceed available supply for AI compute. Both companies also reported record capacity additions in the second quarter: CoreWeave added nearly 500 megawatts and DigitalOcean added about 10 (measured in the same units cited by the analyst). Lenschow said that those moves leave open the possibility of above-average revenue beats and upsized guidance, and he projected CoreWeave’s adjusted operating margin rising to about 14% from around 5%.
Payroll software: muted expectations but upside potential
Barclays kept Paycom and Paylocity at Equal Weight, citing execution uncertainties but noting potential for beat-and-raise quarters. The analyst pointed out that consensus models bake in only $1.3 million of quarter-over-quarter growth at Paylocity, compared with a typical pace closer to $9 million. Paycom, meanwhile, benefits from an extra payroll cycle in the period - an event the analyst said is usually worth $15 million to $20 million. Lenschow also observed both payroll vendors should benefit from higher interest rates on float revenue.
Timing of AI monetization at HubSpot and Monday.com
While Lenschow remains constructive on the long-term AI opportunity for HubSpot and Monday.com, he said the timetable for AI-driven acceleration appears delayed relative to Barclays’ prior assumptions. "The debate is now about timing rather than direction," he wrote, adding that he needs concrete evidence that AI adoption can be converted into sustained revenue acceleration before adopting a more positive stance.
For HubSpot, Barclays expects AI monetization to look more like a second-half 2027 development. The firm expects net new annual recurring revenue (NNARR) to trail overall revenue growth this year, and it said deal cycles have stretched to about five months from four to six weeks.
At Monday.com, AI accounted for 17% of net new ARR in the second quarter but represented only about 1% of total ARR. Barclays projects revenue growth slowing to 16%-17% in the third quarter, down from a roughly 30% pace reported in early 2025.
Bottom line
Barclays’ moves reflect a view that AI-related upside is currently concentrated in infrastructure and select cloud providers, while several application-level software names have not yet translated AI capabilities into visible, sustained revenue acceleration. Investors should watch upcoming earnings for signs that AI adoption is moving from experimentation to measurable monetization across a broader set of software companies.