Software stocks are being repriced as investors distinguish between companies that benefit from AI and those whose products may be easier to replace.

Kuran Francis of FinTek highlighted CrowdStrike, Zscaler and Datadog as software names he sees as better positioned in this environment.

Francis flagged Adobe as a higher-risk case, arguing its seat-based model could face more AI-driven pressure than the market expects.

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Software stocks have been under pressure, but not every company in the sector deserves to be sold off with the group. In a recent conversation with Kuran Francis of FinTek, the discussion focused on a key shift now reshaping the software landscape: investors are no longer treating AI as an automatic positive for every tech company.

That distinction matters. Some software businesses may become more valuable as AI adoption grows, while others could face real pressure if their products become easier to replace. Francis framed the current moment as one where investors need to separate the software winners from the software losers.

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As Francis explained, “the difference between the losers and the winners is only going to get bigger over time.”

In the conversation, three companies stood out as software names that may still have strong upside despite the recent downturn, while one major name landed in the category to avoid.

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On the question of what triggered the broader software weakness, Francis pointed to growing concern that new AI tools are becoming capable enough to replace parts of existing software workflows.

The issue is not simply that AI helps companies work faster. Some tools are now moving closer to doing the work directly, especially in business models built around seat-based pricing. In other words, when a company charges based on how many human users need access, AI may weaken that model if one agent can do work that once required multiple employees.

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Francis said the market is beginning to understand that “AI isn’t just going to sort of lift all boats in technology.” That shift in thinking has created a more selective environment for software investors.

The takeaway from the discussion was clear: companies that are directly benefiting from AI demand, or that charge based on usage rather than seats, may be in a much stronger position than the market is currently giving them credit for.

The first name Francis highlighted was CrowdStrike Holdings (NASDAQ: CRWD), and the case centered on cybersecurity becoming even more important in an AI-heavy world.

If AI is making it easier for bad actors to launch attacks, demand for advanced security tools should rise. That is one of the reasons Francis believes CrowdStrike may be getting unfairly lumped in with weaker software names.

He noted that hackers are already using generative AI to increase the speed and scale of cyberattacks. Francis pointed to CrowdStrike’s own research showing an increase in AI-enabled threats and zero-day vulnerabilities, reinforcing the idea that cybersecurity demand is likely to remain strong.

Just as important, CrowdStrike is not a company trying to bolt AI onto an old platform. Its system was built around identifying suspicious patterns through machine learning long before AI became the market’s favorite buzzword. That history gives the company a stronger moat than many traditional software providers.

The second bullish software name in the conversation was Zscaler (NASDAQ: ZS), which Francis described as a different kind of cybersecurity play.

If CrowdStrike is focused on identifying and stopping threats, Zscaler is more about controlling access and securing how users and systems connect. That becomes increasingly important as more work moves to the cloud and as AI agents begin interacting with systems directly.

Francis emphasized Zscaler’s role in zero-trust security, where every interaction must be authenticated rather than trusted by default. That framework could become even more valuable as businesses seek to capture the benefits of AI without incurring new operational risks.

He also argued that Zscaler has not received the same AI halo that has helped lift some other names. That may help explain why the stock has not recovered as sharply as some peers, even though its technology is closely tied to the future of AI security.

The third company was Datadog (NASDAQ: DDOG), which may be the least talked-about name of the group but one Francis views as especially interesting.

Datadog helps companies organize, monitor and make use of their data across applications, infrastructure and security systems. That may not sound flashy, but in an AI economy, good data is foundational.

Francis made the point that better data leads to better AI outcomes. In that sense, Datadog is helping solve one of the hardest and most important problems in enterprise software: making data usable.

He also highlighted a business model advantage. Unlike companies that depend heavily on seat-based pricing, Datadog charges based on usage.

That means whether the customer is a human employee or an AI agent, the company still gets paid.

Francis called the stock “kind of a hidden gem,” arguing that the market may be overlooking how important its role could become as more companies build AI into their operations.

The one name Francis said investors should be cautious with right now was Adobe (NASDAQ: ADBE).

The concern is not that Adobe lacks strong products. It is that parts of its business model may be more exposed to AI disruption than investors want to admit. Adobe has long benefited from seat-based pricing, especially in creative software. But if AI tools reduce the need for as many individual users, that pricing structure could come under pressure.

Francis said Adobe may now be moving into turnaround territory. “If they continue as if it’s business as usual, I think the stock is going to continue dropping from here,” he said.

That does not mean Adobe has no path forward. But it does mean investors may be betting on a successful strategic pivot rather than a business already fully aligned with where the market is going.

The article "Software Stocks Are Down—Expert Says These 3 Names Still Look Strong" was originally published by MarketBeat.