Investors kicked off 2026 with worries about a possible AI bubble. While it’s clear that some aspects of it have deflated, AI stocks seem to be holding steady.
However, software stocks have taken a hit this year. The iShares Enhanced Technology Software Sector ETF (NYSEMKT:IGV), which counts significant players like Microsoft, Palantir, and Salesforce among its holdings, is affected by concerns that AI could disrupt high-priced software-as-a-service (SaaS) sales. This sector has seen a 24% drop year-to-date as of February 25.
Could AI create the world’s first millionaire? Recently, a report highlighted an obscure company dubbed an “essential monopoly” because it provides key technology for giants like Nvidia and Intel.
While the downturn in some stocks seems reasonable given their lofty valuations and the swift progress in tools like Claude Cowork, certain SaaS stocks may be oversold. Figma and Axon Enterprise are two examples where buying interest appears to be rising, particularly following recent financial results.
Figma, which went public just seven months ago, initially saw its stock price soar but has since dwindled, currently sitting at $20 a share with a market cap of $10 billion—half of its peak. Adobe aimed to acquire Figma in 2022, but regulatory issues blocked that deal.
After a small rally last week, Figma’s stock is still down 74% from its initial high after going public.
Yet, fears regarding Figma might be exaggerated; it’s experiencing rapid growth and has shown profitability according to generally accepted accounting principles (GAAP). The company has also rolled out various AI products and made substantial investments through both acquisitions and new offerings.
Figma’s revenue growth picked up in the fourth quarter, rising 40% to $303.8 million, which includes net new revenue and a 136% net dollar retention rate—meaning existing customers increased their spending by 36% compared to last year.
AI-enabled features like Figma Make are thriving as well, with a 70% increase in weekly active users quarter over quarter. Figma is collaborating with the AI startup Anthropic, suggesting it sees this partnership as advantageous rather than competitive. Notably, Figma launched the Model Context Protocol (MCP) app on Claude and expanded its app using ChatGPT.
Figma projects a 38% sales increase for the first quarter and expects adjusted operating income between $100 million and $110 million for the year.
Even though Figma’s stock remains pricey, it’s rapidly increasing its market share against Adobe, hinting at significant long-term growth. With a clever AI approach, Figma seems set for continued strong performance.
Axon Enterprise is another stock that has thrived in the market, firmly placing itself as a leading player in its sector.
Axon, well-known for its technological solutions for law enforcement—such as TASER devices and body cameras—also provides software that aids in managing records and evidence.
Recently, the company showed impressive earnings, with a 39% increase in sales to $797 million and an adjusted EBITDA rise of 46% to $206 million.
In addition to its strong growth trajectory, Axon is heavily investing in AI. It recently introduced Draft One, a generative AI tool that creates first drafts of police reports using footage from Axon body and dashboard cameras.
Furthermore, Axon has brought forth automatic license plate recognition (ALPR) products and is leveraging AI to enhance its vehicle intelligence and emergency response systems.
Axon appears to be contradicting the AI disruption narrative through its innovation and has forecasted potential revenues of $8 billion by 2028, with annual growth expected at around 30% over the next three years.
Despite recent trends, Axon’s price still leans towards the high side, but its competitive advantages position it well for swift growth ahead.
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Jeremy Bowman holds positions in Axon Enterprise and Figma. The Motley Fool also holds positions in and recommends Axon Enterprise, Figma, Microsoft, Palantir Technologies, and Salesforce. The Motley Fool has disclosure policy.
Software Bear Market: 2 stocks to buy now that are down 74% and 40%
