Collectively, the iconic Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have given investors plenty of reason to smile. The Dow recently eclipsed 50,000, the S&P 500 has gained at least 16% in six of the last seven years, and the Nasdaq Composite has outpaced the gains of the Dow and S&P 500.
But narrowing the lens a bit exposes a different reality for software investors. Whereas Wall Street's major stock indexes have pushed to new heights, the iShares Expanded Tech-Software Sector ETF (IGV 0.50%), comprised of 114 of Wall Street's pre-eminent software companies, is nearly 28% below its all-time high, as of the closing bell on Feb. 9, and was off by more than 32%, as of Feb. 5.
Image source: Getty Images.
In other words, software stocks are mired in a bear market -- and that means opportunity for value-seeking, long-term-minded investors.
The following three historically cheap software stocks are begging to be bought right now by patient investors amid the recent tech rout.
Salesforce
The first magnificent software stock that appears to be a genuine bargain amid the steep recent sell-off is none other than Dow component and customer relationship management (CRM) leader, Salesforce (CRM +2.21%).
While there's been some concern that artificial intelligence (AI) could take away sales opportunities and contracts for software providers, Salesforce has embraced AI as a growth driver.
NYSE: CRM
Key Data Points
As a cloud-based software-as-a-service (SaaS) company, Salesforce has prided itself on developing solutions that help businesses better understand their customers. The company's Agentforce AI platform assists businesses in developing, customizing, and deploying virtual AI agents that work alongside human employees in service, sales, and marketing.
This agentic AI push resulted in more than $500 million in annual recurring revenue (ARR) in the fiscal third quarter (ended Oct. 31), up 330% from the prior-year period. Though Agentforce represents a relatively small piece of Salesforce's ARR pie, it's a high-margin, rapidly growing segment that should become nothing short of a cash cow for the company.
Collectively, Salesforce has given investors plenty of reason to smile. Its remaining performance obligation (RPO) -- effectively the company's backlog, based on future revenue from existing contracts -- surged 11% to $29.4 billion by the end of October. Being the clear No. 1 in CRM market share, coupled with the company's penchant for making strategic bolt-on acquisitions to expand its product offerings and broaden its customer base, has helped it sustain a high single-digit to low double-digit growth rate.
This high-floor sales growth pairs nicely with a forward price-to-earnings (P/E) ratio of just 14.8. For context, this represents a 52% discount to Salesforce's average forward P/E ratio over the trailing five years and is its cheapest forward P/E since its initial public offering in June 2004.
Image source: Getty Images.
Adobe
A second historically cheap stock that's begging to be bought amid the bear market for software companies is Adobe (ADBE 1.29%). The $266.90 closing price for Adobe stock on Feb. 9 is its lowest since it ended at $261.32 on Oct. 23, 2019.
Similar to Salesforce, Adobe has been walloped by fears that generative AI will reduce the need for some of its most profitable software solutions. Even if its brand-name products, such as Photoshop, don't endure an immediate sales decline, skeptics believe the growth rate for its suite of creative software solutions will noticeably slow.
However, these concerns look to be overdone, given Adobe's incorporation of AI (via Firefly) into its generative and agentic platforms, along with its still-impressive growth rates and $22.5 billion in RPO.
In the company's 2025 fiscal year (ended Nov. 28), its Digital Media segment, which contains Firefly, ended with $19.2 billion in ARR, up 11.5% from the previous year. Meanwhile, Digital Experiences subscription sales were up 11% on a constant-currency basis. Adobe grew its sales by 11% in fiscal 2025, generating just over $10 billion in operating cash flow, and anticipates its ARR will rise by more than 10% in the current fiscal year. This doesn't look like a dire forecast or a company under pressure from generative AI tools.
NASDAQ: ADBE
Key Data Points
Generating a copious amount of operating cash flow is also enabling Adobe to buy back a significant number of its shares -- 30.8 million in fiscal 2025. Share buybacks can increase earnings per share for companies with steady or growing net income. Since the beginning of 2006, Adobe has lowered its outstanding shares by 31.6%.
Lastly, Adobe's valuation is truly inexpensive. The company's forward P/E of 10.1 is 61% below its average forward P/E multiple since 2020, and its trailing 12-month P/E ratio has fallen to a nearly 15-year low.
Okta
The third historically cheap software stock that can be purchased with confidence amid the recent tech rout is cloud-based cybersecurity company, Okta (OKTA 2.00%).
Consistent with the theme of this list, worries about generative AI disrupting future growth prospects have weighed on shares of Okta, albeit to a lesser degree than what investors in Salesforce and Adobe have dealt with in recent weeks. And similar to these companies, Okta has embraced AI as a growth catalyst rather than a competitor.
NASDAQ: OKTA
Key Data Points
The Okta Identity Cloud is the company's AI and machine-learning (ML)-driven SaaS platform designed to provide clients with identity authentication and application authorization. As businesses have moved their data online and into the cloud in the wake of the COVID-19 pandemic, third-party providers like Okta have been increasingly relied upon to protect this sensitive information.
The beauty of cybersecurity is that it's evolved into a necessity service. Hackers don't take time off just because Wall Street had a bad day or the economy isn't firing on all cylinders. As hackers become more sophisticated, AI and ML platforms that can learn and become more efficient at detecting threats over time will be the go-to for businesses.
Okta's fiscal third quarter (ended Oct. 31) featured a 17% year-over-year increase in RPO to nearly $4.3 billion and a 37% jump in net cash generated from its operating activities. Subscription-based cybersecurity platforms typically yield a gross margin of around 80%, resulting in abundant operating cash flow.
The icing on the cake is Okta's valuation. While its forward P/E of 24 might not sound like a sizable discount on paper, it represents a meaningful drop from the three- and four-digit forward P/Es observed earlier this decade.
