By Mackenzie Tatananni
ServiceNow was a casualty of the software selloff but the stock has gotten a second wind. It isn't the only one. In fact, renewed investor appetite is triggering a turnaround for software providers of all sizes.
ServiceNow closed up 8.8% on Monday, its biggest single-day gain in more than a year. The surge made it one of the top performers in the S&P 500 on an otherwise gloomy day for the index as well as the broader technology sector.
The rally began after BofA Securities reinstated coverage of the stock, citing a potential "AI-driven reset." Analysts assigned ServiceNow a Buy rating and $130 price target. That price is far from a Wall-Street high, and is actually below the mean of $140.65 among analysts tracked by FactSet.
Nevertheless, BofA's rating marks a crucial vote of confidence for the stock. ServiceNow was among the hardest hit during a prolonged software selloff earlier this year, fueled by market anxieties that artificial intelligence might disrupt software-as-a-service business models.
BofA Securities expects ServiceNow "to benefit from, rather than be replaced by, new AI solutions," analysts wrote Monday. The stock was rising another 6.8% on Tuesday, on track to extended the previous session's gains.
While investors appear to be abruptly changing course, their current enthusiasm isn't without precedent. In fact, there were periods last year when the stock outperformed the broader market. ServiceNow entered 2025 with a crucial update of its ServiceNow AI Platform, and in late July, posted quarterly earnings that its CEO called "spectacular."
But by the following month, the zeal had died out, partly due to a valuation correction in software. Despite Monday's gains, ServiceNow remains down 32% this year and down 49% over the past 12 months; the Nasdaq Composite has gained 12% and 36%, respectively, over the same periods.
The BofA Securities note came at the right time as the market begins to shake off its AI fears. Investors are piling back into tech, driving shares of hardware providers like Intel and Sandisk sharply higher while simultaneously boosting shares of downstream beneficiaries of the data-center boom.
So far in May, software stocks are broadly regaining momentum, with names like Datadog and Fortinet rising 58% and 50%, respectively, in May. Palo Alto Networks, Crowdstrike, and Figma have advanced nearly 40% each, while Akamai Technologies and JFrog are seeing even steeper gains.
Palo Alto may be of the sector's most impressive turnaround stories, considering the stock's dramatic swing from the low to the high end of its 52-week range in a matter of weeks.
Palo Alto shares finished Monday's session up 1.9% at $247.55, narrowly below their 52-week high of $248.85. As recently as last month, the stock was trading near the bottom of that range, closing at $155.73 on April 10, just above its 52-week low of $139.57.
The iShares Expanded Tech-Software Sector exchange-traded fund, which counts Salesforce and Palo Alto among its biggest holdings, also has been on a tear this month. After hitting a low near $74 in April, it staged a major comeback to trade above $90. The ETF was up 1% at $93.76 on Tuesday.
President Donald Trump's first-quarter purchase of a handful of software names also was fueling buzz around a potential SAAS comeback. A disclosure released by the U.S. Office of Government Ethics last week shows Trump purchased between $1 million and $5 million worth of ServiceNow, Adobe, and Workday on Feb. 10.
That comeback narrative is playing out across individual stocks, too. Look at Agilysys, up nearly 30% Tuesday. Quarterly earnings from the small, little-known software provider have breathed life into a stock that is down 41% this year, significantly underperforming the market.
Management highlighted strong subscription growth and record sales as well as the growing role of AI in the business, another sign the narrative is shifting from fear to optimism. CEO Ramesh Srinivasan touted "sweeping AI-related changes across the entire organization," saying they were helping Agilysys keep pace in a competitive market.
Oppenheimer Brian Schwartz acknowledged the "strengthening business momentum" in a research note Tuesday, writing that Agilysys "has begun a noticeable uptrend" that he expects to continue into 2027. Shares already carry premium multiples in small and mid-cap software, "but if the company keeps beating-and-guiding above ... then the stock should keep working," Schwartz added.
Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 19, 2026 10:49 ET (14:49 GMT)
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