Top Software Stocks to Watch Going Into Sept-Qtr Earnings, According to Jefferies

 Jefferies updated its outlook on several U.S. software stocks, highlighting opportunities across observability platforms, enterprise technology and cloud-based tools going into the September quarter earnings season.

The firm identified companies with strong execution and reasonable valuations, while flagging risks for others facing elevated expectations or competitive pressures. The analysis comes as software companies navigate varying demand environments and the evolving impact of artificial intelligence on their businesses.

Dynatrace

Jefferies maintained its "buy" rating and $75 price target on the observability platform provider. The firm said Dynatrace entered its fiscal second-quarter report with a cushion after a strong prior quarter, with Street expectations for new recurring revenue looking modest. Rising consumption should increasingly flow into recurring revenue as several large platform-subscription cohorts come up for renewal, mostly in the second half of the year. Jefferies called the company a reasonably valued way to play observability and enterprise adoption of AI agents, though it flagged sales execution and share loss to Datadog as risks.

IBM

Jefferies kept its "buy" rating and raised its price target to $270 from $260. The firm said IBM faced a show-me third quarter with a lowered bar, after a second-quarter miss it blamed on execution problems and slipped mainframe deals. It viewed the slippage as deferred rather than lost business and said customer checks showed mainframe workloads remained mission critical. The stock should grind higher if IBM recovered most of the delayed deals, showed software growth turning and raised or narrowed its full-year outlook, Jefferies said.

Datadog

Jefferies maintained its "hold" rating but cut its price target to $280 from $300. The firm said Datadog's fundamentals remained best in class, with revenue growth accelerating for six straight quarters and strength broadening well beyond AI-native customers. The setup into the third quarter was tougher, however, as expectations were elevated after a steep share rally and its largest customer was expected to start trimming usage. Valuation was Jefferies' main objection, and it saw better risk-reward in other AI infrastructure names such as Snowflake.

Palantir

Jefferies kept its "underperform" rating and $80 price target. The firm said Palantir delivered standout execution but faced a harder setup into the third quarter, with consensus revenue already above the top of company guidance and comparisons getting tougher in the second half. The stock's sharp run since the last report left little room for error, while competition from frontier AI labs and Databricks was intensifying. Jefferies credited the company's growth and profitability but called valuation full.

Atlassian

Jefferies maintained its "buy" rating and raised its price target to $245 from $200. The firm expected Atlassian to beat revenue estimates in its fiscal first quarter, helped by the easiest comparison of the year, larger enterprise deals and accelerating contracted backlog. The expected slowdown in total revenue growth next year was a mechanical effect of ending support for data-center products and the shift to the cloud, and it saw growth re-accelerating after that. Jefferies acknowledged the stock's big run raised the bar but said valuation sat at a discount to high-growth peers.

Procore

Jefferies kept its "buy" rating and $75 price target. The firm said Procore offered upside despite macro noise, after the stock sold off on worries about higher interest rates following a September rate hike. The company had executed well through the uncertainty and forward-looking macro indicators were mostly positive. Jefferies saw a path to modest re-acceleration on cross-selling, volume expansion and international growth, with room for margins to improve, and called the entry point attractive.

Roper

Jefferies maintained its "buy" rating and $500 price target. The firm said Roper's third-quarter bar looked achievable, but the stock remained a show-me story until growth inflected. Expectations were reasonable after solid first-half execution, and green shoots at Deltek and Neptune, its two largest businesses, were encouraging, though investors still wondered whether the company was fully out of the woods. Jefferies welcomed Roper's tilt toward acquisitions over buybacks but noted it had deployed little of its firepower and called valuation attractive.

Monday.com

Jefferies kept its "hold" rating and $95 price target. The firm said monday.com's third quarter looked beatable, helped by an easier comparison and what it viewed as prudent guidance. AI monetization was starting to show, with AI-related recurring revenue growing rapidly. But it flagged near-term disruption risk from July's workforce cut of about a fifth and a dip in net dollar retention as earlier price increases lapped. Longer-term AI risk loomed because workflow tools looked more exposed than heavy systems of record, Jefferies said.