C3Q EPS Preview: Expect Continued Share Price Recovery; Infra S/W Led by Est. Revisions and App S/W Led by Re-rating; Favor MSFT, NOW, NET and SNOW; D/g HUBS

We are heading into C3Q earnings with a much better backdrop in the industry relative to some of the recent quarters, with the software index IGV up 21% since the end of June with the appreciation across both Application and Infrastructure software. As we look forward to the end of the year, we expect the broader recovery in the software sector index to continue with upsides to Application Software company share prices more likely to be driven by re-rating of valuation multiples as fundamentals prove to be more resilient than priced in by low investor expectations on account of AI disruption threats, while for Infrastructure software companies we expect share prices upsides to be driven by positive estimate revisions helped by AI-led secular tailwinds to revenue despite the backdrop of rich valuation multiples already. On the flip-side, we expect shares for AI infrastructure builders to likely remain constrained on the valuation multiple with investor concerns currently more macro-driv