Morningstar Highlights Significant Undervaluation in Software Stocks: Top 3 Picks for Investors

Key Points

• Microsoft, Salesforce, and Alphabet are adapting to AI advancements and showing significant growth in their respective sectors.

• Microsoft holds a 27% stake in OpenAI and has integrated AI models into its services, maintaining a trailing P/E ratio of 26.5.

• Salesforce reported a 12% increase in sales to $11.2 billion and a 37% increase in earnings per share to $3.81 in Q4 2026.

• Alphabet’s Google Cloud sales rose 48% to $17.7 billion, aided by the success of its AI model, Gemini, which has over 750 million monthly active users.

Microsoft continues to lead in AI, owning a significant share of OpenAI and implementing AI models in its Copilot service to enhance user experience. Salesforce, despite recent declines, has posted robust earnings and anticipates further growth from its AI strategy, including $800 million in annual recurring revenue from its AI service, Agentforce. Alphabet’s growth in AI is reflected in a 48% jump in Google Cloud sales, bolstered by the upcoming integration of its Gemini model with Apple’s revised Siri.

These companies are currently trading at comparatively attractive price-to-earnings ratios, with Microsoft at 26.5, Salesforce at 24, and Alphabet at just over 30, positioning them well for future growth amidst evolving AI technologies.