Citi U.S. software equity research co-head Tyler Radke said investors still have room to find value in software, even as artificial intelligence reshapes the sector. Speaking on the program Making Money, he outlined where he sees openings and how AI may change how companies are valued. His comments come as investors sort through winners and laggards across the group.
Citi U.S. software equity research co-head Tyler Radke discusses software name stocks with opportunity, their value and the impacts of artificial intelligence on ‘Making Money.’
AI’s Growing Role In Software Valuations
AI has become a major theme for software companies. Investors reward firms that can show clear paths to AI-driven revenue. They are cautious with firms that only market AI without proof.
In past cycles, investors prioritized growth at any cost. That shifted with higher interest rates and a focus on profit. Now, the market is sorting firms that can use AI to grow and stay disciplined on costs.
The biggest moves have come from companies tied to data, security, and developer tools. These areas sit close to where AI is built and used. Companies that help process, secure, and manage data often see stronger demand.
Where Opportunity May Emerge
Radke suggested there are still mispriced names. He pointed to businesses with steady cash flow, recurring revenue, and clear AI use cases. Investors are giving higher marks to firms that show both growth and operating leverage.
Infrastructure and data platforms may benefit first. These tools help companies train and run models. Security vendors can gain as AI increases the number of connected systems that need protection.
Application software can also win if products show faster user adoption and pricing power. Clear product updates, usage metrics, and early customer results help build confidence.
Balancing Hype And Execution
Risks remain. Some stocks already price in years of success. That leaves little room for error. If growth slows or AI revenue slips, shares can fall fast.
Investors are pressing management teams for proof. They want to see paying customers, renewals, and larger deal sizes tied to AI features. They also want clarity on expenses, data costs, and margins.
Competition is intense. Large platforms can bundle features. That puts pressure on smaller vendors. Partnerships can help, but they must add real revenue, not just headlines.
What Investors Are Watching
- Evidence that AI features drive higher average contract values.
- Retention rates and upsell across existing customer bases.
- Gross margin trends as compute and data costs rise.
- Cash flow discipline and operating margin targets.
- Pacing of new product releases and customer adoption.
Signals From Management And The Street
Analysts often favor companies that link AI to measurable outcomes. These include faster deployments, reduced churn, or new price tiers. Clear disclosures reduce uncertainty and support valuation.
Guidance also matters. Teams that give detailed road maps on AI pricing and costs tend to gain trust. Conservative forecasts can help if they are paired with visible progress.
Radke’s view reflects a broader shift. The market is rewarding durable growth, not just top-line expansion. AI can help, but execution and unit economics remain key.
For now, investors may find opportunities in names with strong balance sheets and a path to expanding margins. Stocks tied to data, security, and developer productivity appear well positioned. But valuations require caution, and proof points must keep coming.
The takeaway is simple. AI can add value, but it must show up in revenue, margins, and cash flow. That is the bar many software firms will face in the next year.
