The Motley Fool·2026-02-24 09:12Industry Overview - The S&P North American Technology Software Index has declined 32% from its all-time high in September, indicating a bear market for software stocks [1] - Concerns about artificial intelligence disrupting the software industry are driving investor anxiety, particularly regarding demand and profit margins [2] Microsoft - Microsoft has a strong position in various software markets, including office productivity and cybersecurity, and has integrated generative AI into its products, leading to a 160% increase in paid Microsoft 365 Copilot seats in the December quarter [5] - Microsoft Azure is gaining market share in cloud computing, supported by its integration with enterprise software and strength in AI, although it still trails Amazon Web Services [6][7] - Microsoft reported a 17% revenue increase to $81 billion in the December quarter, with non-GAAP net income rising 24% to $4.14 per diluted share, despite a sharp decline in shares due to Azure revenue missing estimates [8] - Wall Street estimates Microsoft's adjusted earnings will grow at 15% annually through fiscal 2027, with a median target price of $600 per share, implying a 52% upside from the current price of $395 [9][10] Cloudflare - Cloudflare offers application, network, and security services, operating the fastest cloud network in many countries and protecting about 20% of all websites [10] - Morgan Stanley ranks Cloudflare as well-positioned to benefit from AI proliferation, as its infrastructure supports the needs of AI agents and integrates with major public clouds [11] - Cloudflare's fourth-quarter results showed a 39% increase in paying customers and a 33% revenue rise to $614 million, with non-GAAP earnings up 47% to $0.28 per diluted share [12] - Despite trading 31% below its high, Cloudflare's stock is expected to grow at 45% annually through 2027, with a median target price of $245 per share, indicating a 40% upside from the current price of $175 [13][14]