BofA Identifies Top European Software Picks Ahead of Q2 Earnings

Bank of America has adopted a constructive outlook on the European software sector ahead of the second-quarter earnings season, arguing that significant underperformance this year has created an attractive risk-reward profile for investors.

Sector Resilience and Growth

In a note to clients, BofA analysts stated that while investor concerns about generative AI disruption and macro uncertainty persist, software companies remain fundamentally resilient. The brokerage highlighted their recurring revenue models and improving prospects for AI monetization as key strengths.

BofA expects the sector to report healthy software revenue growth of 9.4% for the second quarter. This view suggests that the market's current sentiment may not fully reflect the underlying stability of the industry.

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Key 'Buy'-Rated Stocks

BofA reiterated "buy" ratings on several companies it believes are well-positioned to outperform as earnings are released. The firm's top picks include:

• SAP (SAPG): Maintained as a "buy" with a €210 price objective, implying an upside of approximately 53%. Analysts expect the company’s cloud business to remain resilient, supported by steady enterprise demand and ongoing AI adoption.
• Sage (SGE): Retained at "buy" with a price target of 1,334 pence, suggesting a potential 61% upside. The brokerage forecasts quarterly revenue growth of about 10%, citing the company's subscription-based model and expanding AI capabilities.
• Temenos (TEMN): Kept at "buy" with a CHF98 price objective, indicating a roughly 42% upside. BofA's positive view is based on sustained demand for digital banking solutions, which it believes will support the company's underlying business.
• Planisware (PLNW): Remained a "buy" with a €28 price objective, representing an estimated 36% upside. Analysts pointed to the company’s strong recurring revenue base and favorable long-term growth outlook for its project management software.