The recent downturn in software has opened up some attractive buying options.
As we stepped into 2026, many investors began to worry about an AI bubble. While it seems the bubble has indeed burst, AI stocks seem to be holding their ground.
In contrast, software stocks have taken a significant hit this year. iShares Enhanced Technology Software Sector ETF is heavily influenced by Microsoft, Palantir, and notably, Salesforce. This fund has dropped 24% since the year’s start through February 25, primarily due to fears surrounding AI disruption, prompting a sell-off in high-priced software-as-a-service (SaaS) shares.
While a part of this decline makes sense, considering the high valuations and rapid advancements in AI tools, some SaaS stocks seem to be undervalued. It’s worth exploring why Figma and Axon Enterprise are now witnessing a buying trend, especially after their latest financial reports.
1. Figma (74% drop)
Figma went public about seven months ago, and initially, its stock saw impressive gains. However, it’s faced a slump, currently sitting at $20 per share, which is half its $10 billion market cap. Adobe had planned to buy Figma in 2022, but the deal fell through due to regulatory issues.
Even after last week’s uptick, Figma’s stock is still down 74% from its peak shortly after going public.
I think concerns about Figma may be exaggerated. The company is experiencing rapid growth and has shown profitability according to generally accepted accounting principles (GAAP). Moreover, it has been introducing several AI products and engaging in acquisitions to bolster its AI capabilities.
In fact, the company recently recorded a 40% revenue growth in the fourth quarter, bringing sales to $303.8 million. They also managed to achieve a net dollar retention rate of 136%, which indicates a 36% revenue increase from existing customers compared to the previous year.
AI products like Figma Make are gaining traction, boasting a 70% rise in weekly active users from the last quarter. Figma seems more likely to collaborate with Anthropic, rather than compete. For instance, they recently launched the Figma Model Context Protocol (MCP) app on Claude and enhanced the Figma app with ChatGPT.
Looking ahead, Figma anticipates a 38% increase in first-quarter sales, with adjusted operating income projected between $100 million and $110 million for the entire year.
While Figma’s stock price might seem steep, its ability to gain market share from Adobe in recent years suggests strong long-term growth potential, especially with its thoughtful AI strategy.
2. Axon Enterprises (40% decrease)
Axon Enterprises has flourished in the stock market for several years, carving a niche as a leader in law enforcement technology.
The company is known for its TASER weapons, body cameras, and software solutions that assist law enforcement agencies with record management, evidence handling, and prosecution functions.
Despite a recent stock pullback, Axon reported impressive earnings with a 39% sales increase to $797 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 46% to reach $206 million.
Moreover, Axon is making substantial investments in AI. They’ve introduced a generative AI tool called Draft One, which produces preliminary police reports based on footage from their body cameras and dashboard cameras.
They’ve also rolled out automatic license plate recognition products and are utilizing AI to bolster their vehicle intelligence initiatives, integrating data across platforms, including emergency response programs.
In many ways, Axon is countering the narrative of AI disruption not only through its innovative AI solutions but also with optimistic projections suggesting they could reach $8 billion in revenue by 2028. Annual growth is anticipated around 30% over the next three years.
Even with their recent stock adjustments, Axon’s price may still seem high. Yet, considering the solid competitive edge they’ve established, they appear well-positioned for robust growth in the coming years.
