Research Roundup: Top picks in beaten-down infrastructure software sector from a BofA analyst

The cleaner read here is not simply that software looks cheap after a drawdown; it is that the market is beginning to reward names with a credible AI monetization path while punishing those that remain “infrastructure-adjacent” but lack a clear inflection in growth efficiency. Twilio stands out because communications is one of the few software categories where AI can create immediate usage intensity rather than just spend reallocation, which means the upside can come from both higher volume and better pricing discipline. That makes it more levered to incremental model adoption than the broader infra basket, where many winners still need proof that AI spend translates into sustained revenue acceleration rather than one-off pilot activity.

The second-order effect is that any broad rotation into software is likely to be highly selective and valuation-sensitive. Names with premium multiples but only modest growth acceleration will remain vulnerable to “good quarter, bad stock” reactions over the next 1-2 earnings cycles, while platform vendors with durable FCF expansion should absorb capital from investors seeking exposure to AI without taking pure application risk. In that context, Twilio’s upgrade matters more as a signal that the market is looking for operating leverage plus AI optionality than as a blanket endorsement of the sector.

On energy, the near-term catalyst is geopolitical de-escalation, but the more important point is that a rotation out of energy often becomes self-reinforcing if crude stops making new highs: fund flows, factor models, and analyst revisions can all amplify the move over 4-8 weeks. The contrarian risk is that energy is still the cleanest hedge against renewed headline shocks, so a sharp unwind in the group is most vulnerable to any escalation spike; that argues for expressing the view tactically rather than as an outright structural short. In Canada, the survey suggests the market is already leaning away from energy on a relative basis, so the opportunity may be in owning domestic cyclicals and tech beta against energy rather than pressing a naked commodity call.