Key Takeaways:
- Wall Street analysts expect AppLovin and Atlassian to deliver significant returns for shareholders due to their strong positions in the software industry and potential to benefit from the growth of artificial intelligence (AI).
- AppLovin’s ad tech software and Atlassian’s work management and collaboration software are expected to drive growth and increase earnings in the coming years.
- The current valuations of both companies look reasonable, with AppLovin’s valuation at 66 times earnings and Atlassian’s at 31 times earnings.
- Analysts expect AppLovin’s adjusted earnings to increase at 58% annually through 2027, and Atlassian’s adjusted earnings to increase at 22% annually through the fiscal year ending in June 2027.
Introduction to the Software Industry
The S&P North American Technology Software Index has underperformed the S&P 500 by 19 percentage points during the past year, the worst relative performance for the software industry since the bear market of 2022. This underperformance is largely due to concerns that artificial intelligence (AI) will disrupt traditional business models and reduce demand for many software products. However, Morgan Stanley analysts Sanjit Singh and Keith Weiss see things differently, stating that "Productivity unleashed by AI will expand the pool of developers and spur a wave of app modernization initiatives." This creates a buying opportunity for investors, particularly in companies like AppLovin and Atlassian that are well-positioned to benefit from the growth of AI.
AppLovin: A Leader in Ad Tech Software
AppLovin develops ad tech software that helps brands engage consumers and monetize web content with targeted campaigns. The company has differentiated itself in two important ways: it earns revenue based on ad performance, and its AI-powered recommendation engine (Axon) outperforms similar targeting tools from other advertisers. As Morningstar analyst Mark Giarelli notes, "AppLovin is driving a 45% higher return on ad spending than [Meta Platforms] and 115% higher compared with secondary advertising platforms like TikTok, Pinterest, Snapchat [by Snap], and YouTube." Wall Street estimates AppLovin’s adjusted earnings will increase at 58% annually through 2027, making the current valuation of 66 times earnings look reasonable. With a median target price of $774.50 per share, implying 45% upside from its current share price, AppLovin is an attractive investment opportunity.
Atlassian: A Leader in Work Management and Collaboration Software
Atlassian develops work management and collaboration software for development and operations (DevOps) teams and non-technical teams like marketing and human resources. The company has differentiated itself in two ways: it invests more in R&D than its peers, and it is the only work management software vendor that connects technical, non-technical, and IT service teams on a common platform. Atlassian has introduced a suite of generative AI features called Rovo, which supports intelligent search, process automation, and code generation to improve productivity and efficiency across business teams. As a well-established software vendor in several product categories, Atlassian could be a substantial winner as the AI boom unfolds. Wall Street expects Atlassian’s adjusted earnings to increase at 22% annually through the fiscal year ending in June 2027, making the current valuation of 31 times earnings look reasonable. With a median target price of $225 per share, implying 84% upside from the current share price, Atlassian is an attractive investment opportunity.
Investment Opportunities
Both AppLovin and Atlassian offer significant investment opportunities due to their strong positions in the software industry and potential to benefit from the growth of AI. With valuations that look reasonable and expected earnings growth rates of 58% and 22% annually, respectively, these companies are well-positioned for long-term success. As Morgan Stanley analysts Sanjit Singh and Keith Weiss note, the recent underperformance in software stocks creates a buying opportunity seen just once in the past decade. Investors who are patient and willing to take a long-term view may find that AppLovin and Atlassian are attractive additions to their portfolios.
https://www.fool.com/investing/2026/01/23/once-in-decade-investment-2-best-ai-stocks-buy-now/