Key Takeaways
- Mizuho selected Cloudflare, ServiceNow, and Atlassian as preferred software investments before first-quarter earnings reports
- Application software names in the firm’s coverage universe have plummeted an average of 61% during the past twelve months
- Forward EV/Sales ratios currently sit 40% beneath their three-year historical averages, presenting what the firm views as compelling entry points
- Cloudflare’s 13% decline after Anthropic’s Claude Managed Agents reveal is considered an excessive market reaction
- The investment bank reduced valuation targets broadly, affecting Microsoft, Palantir, Check Point, and Datadog among others
Investment banking firm Mizuho has identified Cloudflare, ServiceNow, and Atlassian as its preferred software sector investments heading into the upcoming first-quarter earnings reporting period. Despite widespread valuation pressure across the industry, the firm’s proprietary channel checks reveal robust consumption patterns and accelerating artificial intelligence implementation.
The research note, authored by senior analyst Gregg Moskowitz, was released on Tuesday. It arrives during a particularly challenging period for software equities overall.
Application software companies within Mizuho’s research coverage have experienced an average decline of 61% throughout the past year. Infrastructure-focused software firms managed only a 1% average gain, while cybersecurity stocks retreated 22% on average.
Mizuho attributed artificial intelligence disruption concerns as a primary catalyst behind the sector-wide decline. The firm observed that Software-as-a-Service companies have underperformed infrastructure software peers by approximately 40 percentage points beginning in February 2025.
Valuation metrics throughout the sector have undergone significant compression. According to Mizuho’s analysis, next-twelve-months EV/Sales multiples currently trade 40% below their three-year historical mean. The firm characterized the present risk/reward profile as “quite attractive” across a twelve-month horizon, though it cautioned investors to anticipate a “rocky path” in the near term.
Cloudflare
Cloudflare received “favorable” assessments in the firm’s quarterly channel checks. Mizuho anticipates another reporting period featuring revenue performance exceeding management’s guidance and a fourth consecutive quarter demonstrating revenue growth acceleration.
Shares declined 13% following Anthropic’s announcement of Claude Managed Agents the previous Tuesday. Mizuho characterized this selloff as “overdone” and maintained its Outperform investment rating, although the price objective was reduced to $235 from the previous $255 target.
ServiceNow
ServiceNow’s first-quarter channel feedback indicated stronger-than-anticipated enterprise deal activity, based on Mizuho’s research. The firm reported that Pro Plus product adoption continues advancing at a healthy pace.
Agentic artificial intelligence capabilities delivered through assist packs are building momentum within partner channels, although Mizuho emphasized this remains an emerging trend. The firm projects ServiceNow will surpass its internal guidance calling for 20% year-over-year constant currency committed remaining performance obligations growth.
Mizuho preserved its Outperform recommendation while adjusting the price objective downward to $150 from $190. Shares currently change hands at approximately 12 times calendar year 2027 projected free cash flow.
Atlassian similarly retained its Outperform designation. Mizuho lowered its price target to $145 from $185 but continues anticipating substantial subscription revenue growth acceleration for a second consecutive reporting period.
The firm acknowledged that reduced partner compensation structures implemented several months earlier may have constrained visibility in channel feedback. Nevertheless, Atlassian’s checks delivered stronger results compared to certain competing vendors.
Mizuho additionally reduced price objectives across multiple other portfolio holdings. Check Point’s target was lowered to $165 from $205. Microsoft saw a reduction to $515 from $620. Palantir was trimmed to $185 from $195. Datadog’s target was cut to $145 from $170.
The firm’s broader perspective on software remains measured yet constructive. It characterized public cloud and consumption dynamics as “generally good” and described AI implementation as “very strong” based on first-quarter channel investigations.
