The application software sector witnessed a difficult start to the year with notable misses, guidance cuts, and increasing concerns about software demand being impacted by AI.
However, Citi analysts’ view on the sector remains generally optimistic, attributing most recent challenges to seasonality and misleading IT budget and interest rate signals transitioning from Q4 2023 to Q1 2024.
However, analysts do not dismiss the possibility of selective re-prioritization towards generative AI, which they believe may continue to affect traditional SaaS and seat-based models.
“Bottom line, we’re buyers of the pullback in software and believe the sector is well positioned to outperform into year end with improving IT budgets, a more favorable rate backdrop, traditionally stronger positive estimate revision seasonality, and incremental GenAI monetization trends across our coverage,” analysts at Citi wrote.