A renewed selloff in enterprise software stocks hit Wall Street last weekend, with shares of companies like ServiceNow and Snowflake falling around 8% on Friday. The declines were driven by persistent concerns about the disruptive impact of new AI tools on traditional software providers. However, this wave of panic may be overly indiscriminate.
One method to assess which software companies have brighter prospects is to examine their research and development spending as a percentage of revenue. This metric reflects the level of investment a company is making in new products. By this measure, two companies stand out: Atlassian and Figma.
Australian software firm Atlassian, known for its project management tool Jira, reported R&D expenditures of $2.7 billion in its most recent fiscal year ending June 30, 2025, accounting for 51% of its revenue during that period. Meanwhile, Figma's R&D costs exceeded $1 billion in 2025, representing 97% of its annual revenue.
In contrast, nine other companies—including Salesforce, ServiceNow, HubSpot, Palantir, Microsoft, Shopify, and Adobe—allocated an average of only 19% of their revenue to R&D in their latest fiscal years. These firms directed a larger share of their resources—averaging 27% of revenue—toward sales and marketing activities.
According to Gil Luria, an analyst at investment bank DA Davidson, many software-as-a-service (SaaS) companies emphasize sales and marketing because the value they provide lies "more in the service aspect than in the software itself."
However, Robert Wilson, an investment manager at asset management firm Baillie Gifford, argues that software companies should follow the lead of Atlassian and Figma by making substantial investments in R&D.
"This view is not widely held in the market," Wilson noted. "Overall, the market is in full risk-off mode."
Wilson emphasized that R&D spending serves as a strong indicator of a company's efforts to develop AI applications, intelligent agents, and features that enhance product competitiveness. He also pointed out that differences in how companies account for engineer stock compensation can lead to variations in R&D expense reporting.
The future of software companies is fraught with binary uncertainty. AI agents built on tools like Anthropic’s Claude Code and OpenAI’s Codex could either render traditional software applications obsolete or propel companies to explosive growth.
Most established software firms have already launched their own AI services. For example, Salesforce introduced Agentforce to help customers build and manage AI agents.
Yet, disparities in R&D spending as a percentage of revenue suggest that not all companies are investing heavily in new product development relative to their size. In recent filings, both Atlassian and Figma attributed their high R&D expenditures largely to the costs of developing AI tools and capabilities. R&D expenses in the software industry primarily consist of engineer salaries, along with costs for software tools and licenses for large language models required to build new products and applications.
The heightened R&D investment by Atlassian and Figma may stem from their perceived vulnerability in the AI era. Figma, in particular, is under scrutiny as investors worry that AI tools could easily replace its design software. Atlassian, on the other hand, faces pressure on its per-seat subscription pricing model, as AI programming tools like Claude Code may reduce user demand for its applications.
Both companies have seen their stock prices fall more sharply than the software sector average: Atlassian and Figma shares are down approximately 65% and 51%, respectively. Amid concerns over AI's disruptive impact, the benchmark index for software stocks within the S&P 500 has declined 26% year-to-date.
It is true that larger software companies like Salesforce and ServiceNow are also increasing their R&D spending—at least in absolute terms—though the growth rate lags behind that of smaller peers. Over the past eight years, Salesforce's R&D spending has averaged 15% of revenue, rising from nearly $2 billion in 2018 to $6 billion in the fiscal year ended January 31.
Salesforce declined to comment but stated in securities filings that while it is investing in new technologies like AI agents, it expects R&D expenses as a percentage of revenue to remain stable. The company also anticipates a reduction in sales and marketing costs due to efficiency gains from AI.
ServiceNow emphasized that it "absolutely prioritizes R&D investment" and is "leveraging internal AI to reduce costs and improve efficiency while maintaining or even significantly increasing investments in AI." The company's R&D spending grew from approximately $500 million in 2018 to about $3 billion in 2025.
DA Davidson's Luria believes it is reasonable for these companies' R&D-to-revenue ratios to have stabilized in recent years. He argues that this metric alone does not reflect the effectiveness of a company's AI strategy.
"Simply throwing money at the problem won’t solve it," he said. Instead, software firms should use AI tools to execute R&D projects more efficiently and reduce costs.
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