MS || Software (North America)
4Q25 SaaS Preview – Staying Selective
We see stable demand trends in 4Q25 and growing evidence that AI-bear cases may prove less severe than initially feared; however, the lack of broad-based positive estimate revisions is likely to cap near-term outperformance across application SaaS. While the valuation discount of application SaaS versus broader software has widened materially.
We believe selectivity remains critical given muted CIO budget growth expectations for 2026 and generally conservative initial guidance setups. Our 4Q25 CIO survey points to largely unchanged software spend in 2025, with a modest step-down expected in 2026, reinforcing a more selective approach into earnings.
Into the quarter, we favour names with stock-specific catalysts, conservative setups, and supportive channel checks. In particular, we prefer ServiceNow, HubSpot, and Klaviyo, with a more tactical positive view on Zeta, where upside to preliminary guidance appears achievable.
Conversely, we see less attractive setups where estimate risk skews negative and valuation support is limited. Overall, while 2026 may offer scope for sentiment to improve as AI concerns abate, we expect differentiation at the stock level rather than a broad SaaS re-rating.
Industry View: Attractive
SaaS applications growth and margin expectations
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