3 U.S. software stocks to buy, 2 to avoid: Goldman Sachs

Investing.com -- Goldman Sachs has assumed coverage of the U.S. software sector, naming three stocks it is bullish on while cautioning against two names amid what it calls the “decade of agentic workflow.”

Microsoft, Oracle and ServiceNow are the bank’s Buy-Rated stocks while Adobe and Datadog are Sell-rated.

Analyst Gabriela Borges said it is “constructive on AI adoption being a positive tailwind to the Software TAM over the next 5–10 years,” but warned that annual “datapoints may be uneven as the ecosystem matures.”

Borges argues that the key debate for investors is which companies can turn AI infrastructure demand into “a sustainable, profitable business.” It expects infrastructure software providers to lift gross margins from “<40% to 60%+.”

Microsoft is the firm’s highest-conviction idea, with Goldman Sachs citing “upside to Azure revenue in 2026 given its scale and thoughtfulness on business mix.”

Oracle is also rated Buy, with analysts expecting improving visibility on capex and a clearer path through what it calls a “trough in gross profit growth in 2026E.”

ServiceNow is named as a beneficiary of value shifting to the “agent orchestration layer,” where it is “well positioned” due to its workflow capabilities.

On the application side, Goldman Sachs prefers companies that are “further along in repurposing their stacks,” highlighting Salesforce, though it does not feature in the top three picks.

The firm assigns Sell ratings to Adobe and Datadog, warning that Adobe’s growth is “accruing away from the high end,” while Datadog faces “increased competition and heightened customer focus on budget optimization.”

You May Also Be Interested In

• Anthropic plans high-stakes investor meetings ahead of potential October IPO
• IBM cut at Oppenheimer as software bull thesis will take longer to materialize
• Progressive beats Q2 profit estimates; shares fall 4% premarket