Key Takeaways
- Mizuho designated Cloudflare, ServiceNow, and Atlassian as preferred software investments before Q1 results
- Application software equities under Mizuho’s watch declined an average of 61% in the last twelve months
- Forward EV/Sales ratios now stand 40% beneath three-year historical norms, presenting compelling entry points
- Cloudflare’s 13% decline after Claude Managed Agents reveal viewed as excessive market reaction
- Target prices reduced broadly, affecting Microsoft, Palantir, Check Point, and Datadog among others
Mizuho’s equity research team has identified Cloudflare, ServiceNow, and Atlassian as premier investment opportunities within the software sector as first-quarter earnings announcements approach. The financial institution reports that proprietary industry research indicates robust consumption patterns and artificial intelligence integration momentum, despite widespread valuation compression throughout the software landscape.
The analysis, spearheaded by equity analyst Gregg Moskowitz, was released Tuesday. Its timing coincides with significant headwinds affecting software equities across the board.
Application software companies within Mizuho’s research universe have experienced an average decline of 61% throughout the preceding twelve months. Infrastructure software holdings managed only a marginal 1% average gain, while cybersecurity-focused enterprises tumbled 22%.
Mizuho identified anxiety surrounding artificial intelligence disruption as a primary catalyst behind the widespread selloff. The research note highlighted that SaaS equities have lagged infrastructure software performance by approximately 40 percentage points beginning in February 2025.
Valuation metrics throughout the sector have undergone substantial recalibration. Mizuho’s analysis reveals that forward EV/Sales multiples currently sit 40% beneath their three-year historical average. The firm characterized the present risk/reward equation as “quite attractive” for a twelve-month investment horizon, while simultaneously cautioning about potential near-term volatility.
Cloudflare
Cloudflare received “favorable” assessment marks for the upcoming quarter. Mizuho anticipates another reporting period featuring revenue expansion surpassing company guidance and marking a fourth consecutive quarter of accelerating growth.
Shares retreated 13% following last Tuesday’s announcement regarding Anthropic’s Claude Managed Agents platform. Mizuho characterized this decline as “overdone” and maintained its Outperform designation, although the firm reduced its price objective to $235 from the previous $255 target.
ServiceNow
ServiceNow’s first-quarter assessment revealed stronger-than-anticipated large-contract activity, per Mizuho’s findings. The research firm noted that Pro Plus adoption continues advancing at an encouraging pace.
Agentic artificial intelligence capabilities delivered through assist pack offerings are experiencing growing channel adoption, though Mizuho emphasized this development remains in nascent stages. The firm projects ServiceNow will surpass its 20% year-over-year constant currency cRPO growth projection.
Mizuho preserved its Outperform designation while adjusting the price objective downward to $150 from $190. Current trading levels position the equity at approximately 12x CY27 projected free cash flow.
Atlassian similarly retained its Outperform classification. Mizuho adjusted its price target to $145 from $185 while continuing to project substantial subscription revenue acceleration for a consecutive second quarter.
The research team observed that reduced partner commission structures implemented several months prior may have constrained visibility within channel intelligence gathering. Notwithstanding this limitation, Atlassian’s channel feedback exceeded certain competitive benchmark results.
Mizuho implemented price target reductions across multiple additional positions within its coverage spectrum. Check Point’s objective was lowered to $165 from $205. Microsoft received a reduction to $515 from $620. Palantir’s target was adjusted to $185 from $195. Datadog’s price objective declined to $145 from $170.
The investment bank’s comprehensive perspective on software remained measured yet constructive. Research indicated public cloud and consumption dynamics were “generally good” while artificial intelligence adoption registered as “very strong” throughout Q1 channel assessments.
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