Barclays downgrades 2 software stocks ahead of Q3 earnings Vahid Karaahmetovic Mon, October 12, 2026 at 9:17 AM EDT 2 min read MSFT +0.67% HUBS -1.32% DOCN -4.88% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Investing.com -- Barclays downgraded HubSpot and Monday.com to Equal Weight from Overweight ahead of third-quarter earnings, saying the third quarter should show "more differentiation" across software as AI-driven growth appears at some companies but not yet at others.
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Analyst Raimo Lenschow said he expects a relatively benign earnings season, with checks solid for most names and easier federal comparisons after DOGE-related cuts helping companies such as ServiceNow. He believes AI-fueled growth should be "clearly visible" at DigitalOcean and Datadog, emerging at Microsoft and not yet visible at HubSpot or Monday.com.
Lenschow likes Microsoft for fiscal first-quarter results. The analyst expects Azure to grow in the mid-40% range and Office to deliver underlying growth in the high teens, at 17% adjusted and in constant currency, on Copilot seat expansion and the consumption pricing launched in July. The new accounting structure could add some noise, he added.
DigitalOcean and CoreWeave raised prices during the quarter, by about 30% and 25%, as AI infrastructure demand continues to outstrip supply. Both added record capacity in the second quarter, nearly 500 megawatts at CoreWeave and about 10 at DigitalOcean, which Lenschow said leaves room for above-average revenue beats and raised guidance. He expects CoreWeave's adjusted operating margin to rise to about 14% from 5%.
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Payroll software also looks constructive, with muted expectations. Barclays stays Equal Weight on Paycom and Paylocity because of execution uncertainties, but sees potential beat-and-raise quarters. Consensus models only $1.3 million of quarter-over-quarter growth at Paylocity versus a typical $9 million, and Paycom benefits from an extra payroll cycle, usually worth $15 million to $20 million. Both should also gain from higher interest rates on float revenue.
Lenschow said he remains constructive on the long-term AI opportunity for HubSpot and Monday.com, but the timing of AI-driven acceleration looks later than it assumed. "The debate is now about timing rather than direction," the analyst wrote, and he needs evidence that AI adoption can translate into sustained revenue acceleration before turning more positive.
HubSpot's AI monetization looks more like a second-half 2027 story, as net new annual recurring revenue (NNARR) is expected to trail revenue growth this year and deal cycles have stretched to about five months from four to six weeks.
At Monday.com, AI reached 17% of net new ARR in the second quarter but only about 1% of total ARR, and revenue growth is slowing to 16%-17% in the third quarter from 30% in early 2025.
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