What are we looking for?
Large-cap U.S. technology companies that have underperformed this year but now trade at attractive valuations.
The screen
After years of outperformance, technology stocks have entered a difficult phase in 2026. Investors are grappling with the risk that the rise of artificial intelligence and automation could weaken pricing power across software companies. As lower-cost, do-it-yourself AI tools become more accessible, the market has grown skeptical of incumbents whose products appear, at least on the surface, replicable.
This shift in sentiment has driven a sharp sell-off in several established technology names. The fears may be overstated, and some industry leaders that are actively investing in AI themselves are now trading at valuation levels well below recent norms.
Using FactSet’s screening tool, I identified U.S. tech leaders that have fallen sharply by applying the following criteria:
- Included in the S&P 500 index;
- Market capitalization greater than US$10-billion;
- Categorized in the technology industry, according to FactSet;
- Year-to-date total returns below minus-20 per cent;
The 10 remaining companies were ranked by a multifactor ranking of five valuation metrics: price to earnings, price to sales, price to free cash flow, price to book value, and enterprise value to EBITDA.
What we found
While smaller customers may experiment with lower-cost, in-house AI tools, large enterprises with the highest software spend are far less willing to assume operational, legal, and security risk. The switching costs are substantial, requiring retraining large work forces, rebuilding workflows, and hiring specialized talent to develop and maintain internal solutions. For critical functions, reliability, compliance, and vendor accountability remain of highest importance. These factors continue to favour established software platforms despite growing AI competition.
Adobe Inc. ADBE-Q, a digital media and software provider, ranks third with a 23.7-per-cent year-to-date decline in its stock price. Investor concern has centred on the view that generative design tools could replicate parts of Adobe’s creative suite at a fraction of the cost. In practice, most competing tools remain focused on narrow or entry-level use cases, while professional creators and enterprises continue to rely on Adobe for advanced workflows, cross-platform integration, and collaboration. Moreover, Adobe has been embedding AI directly into its core products, including generative features across Photoshop, Illustrator, Premiere Pro, and Acrobat. Trading at 11.1 times forward price-to-earnings, well below the group average of 19 times, the shares appear to offer a compelling entry point for long-term investors.
Salesforce Inc. CRM-N, an enterprise customer relationship management (CRM) software provider, ranks fourth after falling 26.8 per cent year-to-date. Salesforce has built a durable moat as the system of record for customer data across sales, marketing, and service functions, deeply embedding its platform into day-to-day workflows. Additionally, Salesforce is integrating AI directly into its product suite through proprietary tools such as Agentforce, Einstein, and data automation capabilities layered across its CRM cloud. Salesforce trades at just 2.6 times book value, reflecting a meaningful discount to its historical valuation despite its scale and cash flow profile.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.