RBC Capital Markets concluded a weeklong marketing tour across seven European cities, meeting with nearly fifty clients. The trip gave the firm a detailed look at how investors view the software sector as 2026 approaches.
Most discussions focused on whether application software could finally see a meaningful turnaround next year, and how the rapid growth of artificial intelligence is shaping expectations across the industry.
According to analyst Rishi Jaluria, many clients questioned whether it was time to rotate out of semiconductors and into software, or shift within software from infrastructure to applications. Jaluria said this line of thinking is understandable but cautioned against making broad sector calls. He emphasized that innovation remains the main factor in identifying long-term AI winners.
RBC pointed to the customer relationship management space as an example. The firm said it has stronger confidence in HubSpot as a long-term AI beneficiary than in Salesforce.
Another major theme from the tour was what Jaluria described as the three types of AI bubbles. He believes the market is currently experiencing an AI valuation bubble. An AI spending bubble, he says, depends on whether heavy capital expenditures lead to better models and real enterprise demand. However, he argued that the market is not in an AI usage bubble, noting that stretched valuations can last longer than expected. A cooling AI narrative, he added, would not necessarily improve software sentiment.
Durability was also a key concern among investors. Jaluria highlighted growing skepticism toward companies benefiting from short-term AI tailwinds related to excess capacity, naming Oracle, Akamai, and Fastly as examples. In contrast, he identified Microsoft, HubSpot, and MongoDB as companies with stronger, more sustainable AI advantages.
Jaluria noted that meaningful AI-driven revenue is unlikely before 2027. Because of this, he believes that accelerating revenue growth is essential for software stocks in the near term. Strong financial results, he said, can offset many concerns. If a company is able to accelerate growth without significant AI revenue, that company is likely to remain competitive in a post-AI market.
Looking ahead to next year, he cited HubSpot, Clearwater Analytics, MongoDB, and Guidewire as firms with improving outlooks.
Margins remain a challenge. RBC expects software companies to increase their AI investments, which will pressure gross margins through higher inferencing costs and raise R&D spending as firms develop AI-native products. Still, Jaluria sees these investments as necessary for building stronger companies in an AI-driven future.
Throughout the tour, the companies most frequently discussed by investors were Microsoft, Salesforce, Oracle, Workday, and MongoDB.
