Software stocks are having a rough stretch. Fear that AI will gut licensing revenue, slow enterprise spending, and the long hangover from the 2021 valuation bubble have pushed the sector into deeply discounted territory. The S&P North American Expanded Technology Software Index is trading around 21 times forward earnings, down from nearly 40 in mid-2024 and well below its 10-year average of 34. That kind of compression does not happen to every stock equally. Two names stand out right now as businesses with real track records, real cash flow, and multiples that do not match the quality sitting underneath.

Salesforce (CRM) – The Agentic Pivot Is Real

Salesforce is the world’s largest CRM platform, and it has spent the last two years quietly becoming one of the more interesting AI plays in enterprise software. Not in the hype-driven way. In the cash-flow-and-contracts way.

The numbers for Q1 fiscal 2026 were clean. Revenue came in at $9.83 billion, up 8% year over year, beating Wall Street estimates. Free cash flow hit $6.3 billion for the quarter, up 4% year over year. Non-GAAP operating margin sat at 32.3%. The remaining performance obligation – essentially contracted future revenue – stood at $72.4 billion, up 14% year over year. That is not a company in distress.

The part people are skipping over: Agentforce. Salesforce’s autonomous AI agent platform crossed 4,000 paid customers and $100 million in ARR within its first few quarters of availability. Data Cloud and AI combined ARR surpassed $1 billion, growing over 120% year over year. The company is already using Agentforce internally – it reassigned 500 customer support workers and reported $50 million in operational savings from the deployment.

Now the valuation. Salesforce trades at less than 13 times estimated earnings. Its 10-year average forward multiple is 45. That is not a rounding error – that is a historically wide gap for a company guiding $41 billion-plus in full-year revenue and sustaining 30%-plus non-GAAP operating margins. Full-year guidance calls for 8% to 9% revenue growth with operating cash flow growth of approximately 10% to 11%.

The bear case is straightforward: growth has slowed from the pandemic-era highs, and the Informatica acquisition adds integration risk. Those are legitimate concerns. But at this multiple, a lot of bad news is already baked in.

Adobe (ADBE) – A Wide Moat at a Narrow Price

Adobe is a trickier story to tell, and that is probably why it is cheaper than it should be.

The Q1 fiscal 2026 results were actually strong. Revenue grew 12% year over year to $6.40 billion, beating estimates of $6.28 billion. Non-GAAP EPS came in at $6.06, up 19% year over year. Non-GAAP operating margin hit 47.4%. Operating cash flow for the quarter was a Q1 record of $2.96 billion, up 19.2% year over year. Total Adobe ARR exited the quarter at $26.06 billion, growing nearly 11% year over year.

Here is where it gets interesting. Adobe’s stock has been punished on fears that generative AI tools will cannibalize its creative software business. There was a real headwind in the quarter – the standalone stock image business declined faster than expected as AI-generated content takes share. Management acknowledged it. But the core Creative Cloud, Acrobat, and enterprise Document Cloud products remained healthy, and Firefly – Adobe’s own generative AI engine – is gaining adoption. Adobe is not fighting AI. It built one.

Slight tangent, but it matters: Adobe has beaten revenue estimates for 12 consecutive quarters. That kind of consistency does not come from luck – it comes from subscription stickiness and enterprise contracts that do not turn over easily.

The valuation has collapsed toward levels not seen in a decade. Adobe is now trading around 10 times estimated earnings, well below its 10-year average forward multiple of 30. Morningstar carries a wide economic moat rating on the stock and estimates shares are approximately 37% undervalued relative to fair value. For a company with a 47%-plus non-GAAP operating margin and over $2.9 billion in quarterly operating cash flow, the current price is hard to justify on fundamentals alone.

The risk is real: if AI image generation continues eating into Creative Cloud’s addressable market faster than Firefly monetization ramps, the growth math gets harder. That is the question the market is pricing in. What it may be underestimating is how difficult it is to replace a platform that millions of professionals have built their workflows around for 30 years.

What to Watch

• CRM: Agentforce ARR trajectory and Informatica integration progress
• CRM: Whether RPO growth accelerates above 14% as enterprise AI spending picks up
• ADBE: Firefly and AI monetization ramp against traditional stock business decline
• ADBE: Full-year ARR growth holding near the 10.2% guidance target
• Both: Operating cash flow margins as the primary health check

The market has lumped most software stocks into the same disruption bucket. That creates gaps. Both of these businesses have been through multiple cycles, kept margins intact, and are now building AI products with real adoption data behind them. The price just does not reflect that yet.

Worth a closer look.

– The Cheap Investor