Investment bank Piper Sandler's 2026 software industry outlook is the preferred target for these companies

The Zhitong Finance App learned that investment bank Piper Sandler made adjustments to the investment ratings of several software stocks in the newly released 2026 security and infrastructure software industry outlook. The bank upgraded the Varonis System (VRNS.US) rating from “neutral” to “increased holdings” and downgraded the SentinelOne (S.US) rating from “increased holdings” to “neutral”. At the overall industry level, the bank believes that although the performance of software stocks in 2025 is generally under pressure, after entering 2026, some companies have seen more attractive allocation opportunities between valuation and long-term growth.

Piper Sandler pointed out that 2025 was a very difficult year for the software companies it covered. The average share price performance was negative, and only 4 companies outperformed the NASDAQ index, the lowest level in more than five years. However, the analyst team is cautiously optimistic about 2026, believing that after experiencing valuation compression, many companies are already in a more favorable position and are expected to become winners in the generative AI wave in the long term, even though large-scale monetization at the software level has not yet been fully implemented.

In terms of individual stocks, Piper Sandler upgraded the Varonis system rating to “overhold” and raised the target price from $45 to $47. Analysts said that Varonis's stock price was previously under significant pressure after the release of the third quarter results, mainly due to the loss of customers exceeding expectations and the company's announcement that it will stop supporting locally deployed products (EoL) by the end of 2026, which had a negative impact on investors. However, with the “recalibration” of performance expectations and the company's overall focus on the SaaS business with relatively steady performance, the current stock price provides an attractive entry point for medium- to long-term layout.

Analysts believe that in the field of data security, enterprises still tend to “assemble” risks through multiple solutions, and Varonis' deep foundation in traditional data storage (such as SAN, NAS, SharePoint), as well as the recent modernization of product capabilities, will help drive the growth of new customers and accelerate the migration of existing customers to the SaaS model. Piper Sandler further pointed out that last year's downward guidance has significantly lowered market expectations, making the current forecast for the SaaS business in 2026 appear conservative. Even without considering more local customer conversions, the company is still expected to achieve a SaaS scale of more than US$825 million by the end of 2026 and maintain a mid-range growth rate of about 30%.

Meanwhile, Piper Sandler downgraded SentinelOne's rating to “neutral” and lowered the target price from $20 to $17. Analysts said that the stock's current valuation is about 3 times the expected revenue in 2027, which is quite cheap on the surface, but recent management changes, lack of clear short-term catalysts, and disappointing recent performance have reduced its appeal among similar companies. However, Piper Sandler still has a positive view of the technology platform built by SentinelOne, and believes that at current valuation levels, it is not ruled out that it is potentially attractive to strategic or financial investors.

From an industry configuration perspective, Piper Sandler believes that the software sector will continue to be characterized by “accelerated growth and scarcity” in 2026. In a context where the overall demand environment is relatively stable, but generative AI poses a potential impact on traditional software business models, analysts prefer companies that can achieve further acceleration in growth, or maintain a high level of growth even when market expectations generally slow down.

Based on the above judgment, Piper Sandler's preferred targets for 2026 include Palo Alto Networks (PANW.US), Atlassian (TEAM.US), Check Point Software (CHKP.US), Netskope (NTSK.US), and ServiceNow (NOW.US). Analysts believe that these companies either have the advantage of platform integration or are highly defensive in terms of business models, product positioning, or cash flow quality, and are expected to stand out in the increasingly fragmented software market in 2026.