Software Stocks: Values or Traps?

Welcome to Episode #480 of the Zacks Market Edge Podcast.

Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.

This week, Tracey went solo to check in on the software stocks again. Many of them continue to hit new lows. They’ve all reported fourth quarter 2025 earnings now so it’s a good time to check in on whether the companies are values or traps.

Definition of a Value Stock Versus a Trap

It’s important to remember what a value stock is and what makes a trap. Just because a stock has sold off, that doesn’t mean it’s a value. Valuations are based on earnings or sales.

To determine whether a stock is a true value, or a trap, investors must look at the earnings outlook.

Are earnings expected to rise this year and next?

Are analysts raising earnings estimates for this year?

Is the earnings consensus moving in the right direction, which is higher?

The software stocks have been growth stocks for years. But it may now be time to get growth at a cheap price.

5 Popular Software Stocks: Values or Traps?

1. ServiceNow, Inc. (NOW)

ServiceNow was a superstar stock for the last few years until last year. Shares are down 34% over the last year, including 32% year-to-date. Over the previous 5 years, ServiceNow is up just 4.5%. It has almost round tripped.

ServiceNow has gotten cheaper on a price-to-earnings (P/E) basis. It now trades with a forward P/E of 25. Analysts are bullish about 2026, with 3 estimates raised in the last 60 days.

Is ServiceNow a value after the sell-off or is it a trap?

2. Salesforce, Inc. (CRM)

Salesforce is looking downright cheap. Shares are down 12% over the last 5 years, after falling 29.5% year-to-date.

Salesforce now trades with a forward P/E of 14.1. A P/E under 15 usually indicates value. Salesforce also has a PEG ratio of 1.0. A PEG of 1.0 or less usually indicates a company has growth and value.

Earnings are expected to rise 4.6% in fiscal 2027.

Is Salesforce cheap enough to buy?

3. Palantir Technologies Inc. (PLTR)

Palantir is a superstar stock. It’s up 528% in the last 5 years. But in 2026, the shares have sold off. Palantir is down 17.7% year-to-date.

It’s cheaper than it was last year, but that is relative. Palantir still trades with a forward P/E of 104.9. A P/E over 100 is extremely expensive. It also has a price-to-sales (P/S) ratio of 73.5. That means that investors are paying $73.50 for every $1.00 of sales.

Palantir is a growth stock, with earnings expected to rise 74.7% in 2026.

Palantir is not a value, but is it a trap?

4. Adobe Inc. (ADBE)

Adobe has been hitting new 5-year lows in 2026. Shares are down 49% during that period and have fallen 31% year-to-date.

It’s cheap on a P/E basis. Adobe trades with a forward P/E of 10.3. It also has an attractive PEG ratio, which looks at growth and earnings, of 0.8. A PEG ratio under 1.0 indicates a company has growth and value.

Earnings are expected to rise 12.3% this year after rising 13.7% last year.

Is Adobe a value in 2026 or is it a trap?

5. AppLovin Corp. (APP)

AppLovin is one of the big winner stocks of the last 5 years. Shares are up 468.6% during that time. But, in 2026, AppLovin has tanked 41%. Is this a buying opportunity in AppLovin?

It’s cheaper than it has been in a long time. AppLovin trades with a forward P/E of 23.6. A P/E ratio under 25 is attractive for a technology stock. Earnings are expected to jump 57.3% in 2026 after rising 121.6% in 2025.

AppLovin is obviously a growth stock. But it also has a PEG ratio of just 0.6. That means it has both value and growth, which is a rare combination.

Is AppLovin a value or a trap?

What Else Should You Know About the Software Stocks?

Tune into this week’s podcast to find out which are values, which are traps, and which may be neither.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research

Source Zacks-com