Just noticed something interesting about the software sector that might be worth paying attention to. Over the past year, software stocks have massively underperformed the broader market by nearly 20 percentage points - the worst relative performance since 2022. Most people are freaking out that AI will cannibalize traditional software, but I think that's actually creating one of the best ai stocks to invest in opportunities we've seen in years.

Morgan Stanley's research team actually laid out a compelling counter-argument: AI productivity gains will expand the developer pool and trigger a wave of modernization initiatives. That's the kind of tailwind that could benefit the right software companies significantly.

I've been looking at two names specifically. AppLovin is an ad tech platform that's been crushing it with AI-powered campaign optimization. What sets them apart is their revenue model - they get paid based on actual ad performance rather than just taking a cut of spend like competitors do. Their AI recommendation engine (Axon) is legitimately outperforming alternatives by massive margins. Morningstar noted they're delivering 45% better returns on ad spend compared to Meta and over 100% better than TikTok and similar platforms. Wall Street is modeling 58% annual earnings growth through 2027, and analysts have a median price target around $775, implying roughly 45% upside from current levels.

Then there's Atlassian, which develops collaboration software for technical and non-technical teams. They've built something unique - they're the only platform connecting DevOps teams, business teams, and IT service management on one system. That creates serious upsell potential. They just rolled out Rovo, a generative AI suite that handles intelligent search, process automation, and code generation. As an established player across multiple categories, they could be one of the best ai stocks to invest in as this AI wave plays out. Analysts expect 22% annual earnings growth through mid-2027, with a median target price around $225, which would be about 84% higher than where shares are trading.

The interesting part is both companies beat earnings estimates consistently - AppLovin by 21% on average and Atlassian by 16% - which suggests Wall Street might actually be underestimating them. Software sector valuations have gotten beaten down enough that you're looking at some genuine value in best ai stocks to invest in right now. The question is whether you believe AI will actually create new opportunities or destroy existing ones. I'm betting on the former.