Software stock investors have plenty of reasons to be bearish lately. New AI agents were expected to become significant sources of software revenue, and many analysts were ready to put the ‘per seat’ business model on life support. But in the months following the software stock crash, a funny thing happened: this fear failed to materialize into earnings. In fact, many companies that are vulnerable to ongoing revenue saw sales growth hurry up in the first half of 2026, and these stocks are now trading below their historical valuation levels.
Is it time to use software stocks? Sentiment about the sector remains negative, and Morgan Stanley flagged SaaS debt as a concern, noting that 46% of software loans mature in the next four years. But the apocalyptic predictions seem off, and many software companies now see AI as a ghost. We will focus on a pair of software stocks that suddenly look attractive from a fundamental and technical perspective.
Software Stocks With Bullish Fundamentals and Technical Signals
iShares Expanded Tech-Software Sector ETF Bats: IGV it is still down more than 10% in the last 12 months, but the downtrend has been removed. Stronger earnings have already boosted several companies in the space, including large caps like Oracle Corp. NYSE: ORCL and Fortinet Inc. NASDAQ: FTNT. Software stocks are also starting to benefit from the technology sector’s turnaround as investors look to move away from expensive memory and chipmaker stocks without exiting the market entirely. The following two companies both helped put the nail in the “AI will doom software” box with their Q1 2026 results.
Atlassian: Cloud Acceleration Blows the Crowding Thesis Per Seat
One of the companies targeted to gain momentum in AI was Atlassian Corp. PLC NASDAQ: TEAMwhich develops digital tools for managing workflows.
Atlassian Today
- 52 week interval
- $56.01
▼
$222.59
- Target Value
- $145.63
And for investors, the pain has been real, with the stock down nearly 60% in the past 12 months. However, the company reported its Q3 2026 financial results on April 30, and AI is now looking more like a storm than a hurricane.
Atlassian easily beat Q3 revenue and earnings estimates, with earnings per share (EPS) figures beating expectations by more than 20%. Revenue grew over 30% year-on-year (YOY), but the adoption of the AI-Rovo assistant is what turned the market on its head. Millions of users have already adopted Rovo in their Jira or Confluence cloud workflows, and the results have been extraordinary: clients using Rovo have reported more than double the annual revenue (ARR) of non-users. The stock jumped nearly 30% in the session following the earnings release, which sparked several new technical signals.
The bearish momentum has been waning since the end of February, as evidenced by the bullish crossover in the Moving Average Convergence Divergence (MACD) indicator. The MACD continued to rise in March and April before finally breaking the histogram following the pop of April 30. The stock is now trading above its 50-day moving average for the first time all year, providing a solid technical background to the company’s fundamental strength.
Datadog: The Beneficiary of Hyperscaler Workload Outsourcing
Here’s a software stock that’s actually going to top innovation in 2026. Datadog Inc. NASDAQ: DDOG is up more than 30% following its Q1 beat on May 7, and the stock continues to outperform other tech stocks.
Datadog Today
- 52 week interval
- $98.01
▼
$220.35
- The P/E ratio
- 559.37
- Target Value
- $213.38
The company’s Q1 2026 numbers eased any concerns about AI bleeding sales: more than $1 billion in quarterly revenue (the first) and an EPS hit of more than 17%. The company is also attracting more profitable customers as hyperscalers outsource their work.
Over 4,500 customers reported annual recurring revenue of $100,000 or more, an increase of over 20% YOY. Many of these high-end customers use Datadog GPUs to outsource their AI model training environments, generating large, solid profits.
The stock received a wave of price target blasts following the report, including a Street-high of $305 from Stifel Nicolaus.
DDOG shares are now higher than their previous November lows and may be getting a boost from technical waves. Like the TEAM, the MACD suggested accumulating bullish momentum before the catalyst for gains. Now as the breakout continues, another technical catalyst is forming: the Golden Cross, which occurs when the 50-day moving average crosses above the 200-day moving average. The Golden Cross is often a “clear” message for algorithmic traders to open new positions in the stock, so more upside may be found in DDOG this summer.
Before you consider Atlassian, you’ll want to hear this.
MarketBeat tracks Wall Street’s top and most effective research analysts and the stocks they recommend to their clients every day. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Atlassian wasn’t on the list.
Although Atlassian currently has an Average Buy rating among analysts, top analysts believe these five stocks are the best.
View Five Stocks Here
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