Hot Picks: Software stocks rally on AI enterprise demand

Artificial intelligence adoption and enterprise software modernization are helping drive renewed momentum across the software sector, even as investors remain cautious about volatility tied to AI disruption and broader sentiment shifts.

BNN Bloomberg spoke with Steven Enders, vice-president and senior equity research analyst at Citi Research, about software companies benefiting from AI-driven workflow automation and enterprise adoption trends, including Pegasystems, Appian and Box.

Key Takeaways

• AI-driven workflow automation is creating new growth opportunities for enterprise software companies serving regulated industries.
• Investors remain cautious about the potential for AI disruption to reshape parts of the software sector.
• Companies focused on complex business processes and governance are seeing stronger enterprise demand for AI tools.
• Government modernization efforts and enterprise efficiency initiatives are supporting software spending trends.
• Security, compliance and content governance are becoming increasingly important as businesses integrate AI into operations.

Read the full transcript below:

LINDSAY: It’s time now for Hot Picks, and today we are zeroing in on three plays in the software sector, including a high-risk buy. For more, let’s welcome Steven Enders, vice-president and senior equity research analyst at Citi Research. Good morning. Great to have you join us.

STEVEN: Great, thanks for having me. How are you doing today?

LINDSAY: Great. I hope you’re doing well too. I’m interested to talk about the software sector because, before we get into your picks, it’s had quite the year so far, as I know you’re aware of. Is it past the rebound stage? Is it still in the rebound stage? Where are we right now?

STEVEN: Yeah, I think we’re still trying to figure out exactly where things are heading and where things are trending. I think there’s a lot of focus on what’s happening with AI and the opportunities or risks that come from that, and the disintermediation that could potentially come through. So I still think we’re figuring out where things are at.

It feels like maybe we’ve found a bit of a new bottom here, and maybe things can feel a little more stable and supported moving forward. But it always feels like we’re a headline away from sentiment changing and reversing course again, and I think that remains a bit of a risk right now for the entire sector.

LINDSAY: Okay, so maybe still on some wobbly ground. With that, though, let’s get into your first topic for today. This is what you call the high-risk buy, Pegasystems Incorporated. Tell us more.

STEVEN: Yeah, so I think Pega has been one of those companies that’s maybe a bit of an underappreciated AI beneficiary across the landscape. When you think about their roots, they’re really good at automating workflows.

I think there are concerns in the market around what that means in an AI world if more decision-making is put onto some of these model companies. Having said that, the kinds of workflows and applications Pega is really working on are more focused on complex use cases where you have 100-plus step processes and a lot of decision-making involved.

For the companies they work with, it’s a lot of regulated industries — banks, insurance companies and government. The workflows they tend to work on are probably areas where there’s more hesitancy to fully trust AI with those processes.

I think it’s one of those situations where you can plug certain aspects of AI into the workflow and use those agentic capabilities as one part of the broader process with Pega.

When you think about what they’re doing with AI, they’re really putting it at the forefront of their go-to-market and product strategy. It’s helping ease the on-ramp to their own product set by utilizing their Blueprint strategy, which is their generative AI strategy, to simplify how customers come to them and begin using Pega more efficiently.

So I do think there are opportunities for them to drive growth. You’ve seen ARR accelerate, and we expect it to accelerate further into the back half of this year. I think they are benefiting from generative AI, but you still have concerns and risks weighing on sentiment.

LINDSAY: Okay, next up, Appian Corporation. Not sure if I pronounced that right, but tell us more about this company.

STEVEN: Yeah, Appian is kind of in the same space as Pega. They’re an application platform helping companies automate complex workflows.

Similar to Pega, I think there are fears about disintermediation and what could happen if more of these application workflows become codified with agents or other AI systems.

At the same time, when you look at the types of workflows and use cases Appian is involved in, it’s a lot of highly regulated industries. They have more than 30 per cent exposure to the federal government, and they’re winning larger contracts within the government space, including a US$500-million enterprise licence agreement with the U.S. Army.

A lot of those initiatives are still moving forward. When you think about government efficiency efforts over the past year and a half, I think Appian is a company that stands to benefit from that.

I think you’re starting to see that in the numbers. We’re seeing cloud growth accelerate and revenue pick up as well, and AI is a big piece of that.

They recently disclosed that they have US$100 million of ARR coming from their AI tier. They’re seeing really strong adoption, including more than 1,000 per cent growth in some AI usage metrics this past quarter.

So there are a lot of things going right there that are still underappreciated because of longer-term concerns about whether they could eventually be displaced by AI. But I don’t think we’re seeing that right now. When we look at the fundamentals, things still look healthy for Appian.

LINDSAY: Last topic was Box Incorporated, which you say could see substantial growth by the end of this year.

STEVEN: Yeah, that’s another name where we see AI helping accelerate growth, and I don’t think people are fully appreciating the opportunity that comes with it.

They’ve really leaned into their enterprise suites opportunity over the past few years. Their newest tier, which has only been out for about a year, already accounts for about 10 per cent of revenue and is still only penetrated in the mid-single digits across the customer base.

If you think about what it means to expand that tier across the rest of the customer base, that’s potentially a 30 to 40 per cent uplift.

They’re already at more than 70 per cent penetration across suites, and I think there’s more they can do there. I do think the acceleration should continue.

When you look at their agent strategy and what they’re doing with AI, they’re operating at the forefront of the technology and integrating with all the major AI vendors. They’re working closely with Anthropic and OpenAI and trying to become a major part of the enterprise content strategy moving forward.

We feel pretty good about the fundamentals at Box. What they’re doing is still underappreciated, and when you think about disintermediation risk with AI, there’s a lot around content, security, governance and file management that is harder to replicate.

So we feel good about what’s happening with Box right now and about the long-term strategy.

LINDSAY: Interesting. Okay, we are out of time, but Steven Enders, vice-president and senior equity research analyst at Citi Research, we appreciate your time. Thank you so much.

STEVEN: Awesome. Thank you.

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This BNN Bloomberg summary and transcript of the May 19, 2026 interview with Steven Enders are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.