Software Stocks Have Plunged: Steals or Traps?

• (0:15) - Where Should You Invest Within The Software Industry
• (2:40) - Tracey's Top Stock Picks For Your Watchlist Right Now
• (15:30) - Episode Roundup: TWLO, CRM, ADBE
• [email protected]

Welcome to Episode #472 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 talk about the big cap software stocks. Many of them have plunged to start 2026 on fears that AI will replace some of their products. But will it?

Tracey took a closer look at three big cap software companies. Are earnings on the decline? Are the earnings estimates being cut?

Are the software stocks a deal, or are they a trap?

Definition of a Value Stock Versus a Trap

There are a lot of stocks that plunge so they appear to be cheap. Some may even have a low price-to-earnings (P/E) ratio. A low P/E ratio usually indicates a company is a value.

A stock is a trap if it’s cheap, but the earnings are expected to fall year-over-year. Investors want companies that are growing earnings.

Are the software companies expected to grow their earnings in 2026?

3 Big Cap Software Stocks: Steals or Traps?

1. Twilio Inc. (TWLO)

Twilio operates a customer engagement platform for leading brands. It has a market cap of $18.5 billion.

Twilio shares have fallen 11.2% in the last month and are now down 67.8% over the last 5 years. Yet earnings are turning around. Twilio is expected to see earnings growth of 25.3% in 2025 and 11.1% in 2026.

Twilio has a PEG ratio, which measures the P/E over Growth, of just 1.1. A PEG ratio of 1.0 or below usually means a company has both growth and value so Twilio is cheap.

Is Twilio a steal or a trap in 2026?

2. Salesforce, Inc. (CRM)

Salesforce has AI agents, data and Customer 360 apps to help companies connect with customers. It has a market cap of $217 billion.

Shares of Salesforce are down 12.5% over the last month on AI fears. But earnings for fiscal 2026 are expected to rise 15.3%. Salesforce has a forward P/E ratio of just 18.8. That is cheaper than the S&P 500, which is around 24x.

Are the worries about Salesforce overblown?

3. Adobe Inc. (ADBE)

Adobe is one of the largest software companies in the world, with over 30,000 employees. It has a market cap of $125 billion.

Adobe shares have really been hit over the last month, falling 16%. Over the last 5 years, they’re down 36.5% and are near 5-year lows.

Earnings are expected to rise 11.9% in fiscal 2026 and 13.3% in fiscal 2027. Adobe is cheap on a P/E basis with a forward P/E of just 12.5. A P/E under 15 usually indicates value.

Is Adobe a steal or a trap in 2026?

What Else Should You Know About the Big Cap Software Stocks in 2026?

Tune into this week’s podcast to find out.

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

Zacks Investment Research

Source Zacks-com