Industry Description
The Zacks Internet Software industry comprises companies offering application performance monitoring, infrastructure and application software, DevOps deployment and Security software. Industry participants offer online payment solutions, asset optimization software, multi-cloud application security and delivery, social networking, 3D printing applications, and cloud content management solutions. They use the SaaS-based cloud computing model to deliver solutions to end-users, as well as enterprises. Hence, subscription is the primary revenue source. Advertising is also a major revenue source. Industry participants target a variety of end markets, including banking and financial services, construction, consumer packaged goods, education, energy, legal, various service providers, federal governments, and animal health technology and services.
3 Trends Shaping the Future of the Internet Software Industry
Enterprise Software Infrastructure Growing Rapidly: The industry is benefiting from rapid AI adoption, which is driving demand for enterprise software infrastructure. AI-generated code is driving sharp increases in code pushes and platform usage, creating structural demand for DevSecOps platforms that can manage security, governance and deployment at machine scale. Growing requirement of integrated platforms capable of orchestrating both human developers and AI agents while maintaining compliance and operational control is benefiting the industry’s prospects. Platform consolidation is becoming increasingly attractive as enterprises seek unified data and AI infrastructure.
Consumption-Based Pricing Gains Traction: The emergence of AI-native pricing models is a key catalyst. The industry players are moving beyond traditional seat-based licensing by introducing consumption-based credits and outcome-driven pricing. The companies are allowing customers to scale usage as AI adoption expands, opening new monetization channels that extend beyond conventional software subscriptions. AI-powered agents, automation and consumption-based pricing are creating incremental revenue streams while increasing customer productivity.
AI Agents & AI-Workloads Create Opportunities: The growing need to secure cloud platforms amid the increasing incidences of cyberattacks and hacking drives the demand for web-based cybersecurity software. As enterprises continue to move their on-premises workloads to cloud environments, application and infrastructure monitoring are gaining importance. This is increasing the demand for web-based performance management monitoring tools. AI applications, AI agents and cloud-based AI workloads are expanding the attack surface for businesses, which bodes well for industry participants.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Internet Software industry, placed within the broader Zacks Computer and Technology sector, carries a Zacks Industry Rank #152, which places it in the bottom 38% of more than 247 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2026 have moved south by 1.7% since Aug. 31, 2025.
Given the bearish outlook of the industry, there are only a few stocks worth picking for healthy portfolio returns. However, before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Internet Software industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index in the past year.
The industry has dropped 14.8% over this period compared with the S&P 500’s jump of 20.8% and the broader sector’s appreciation of 29.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-sales (P/S), which is a commonly used multiple for valuing Internet Software stocks, we see that the industry is currently trading at 3.96X compared with the S&P 500’s 4.97X and the sector’s forward 12-month P/S of 6.71X.
Over the last five years, the industry has traded as high as 6.12X and as low as 3.69X, with a median of 4.73X, as the charts below show.
Forward 12-Month Price-to-Sales (P/S) Ratio
3 Internet Software Stocks to Buy Right Now
Unity Software: This Zacks Rank #1 (Strong Buy) stock is benefiting from the rapid adoption of AI across game development and interactive content creation. You can see the complete list of today’s Zacks #1 Rank stocks here.
AI is accelerating game production, increasing new developer sign-ups and expanding demand for game discovery and monetization tools. The company is leveraging these trends through Vector, its AI-powered personalization platform, Unity AI for content creation and the upcoming commerce platform, while AI-native pricing models tied to agent usage are expected to create additional long-term revenue opportunities.
Unity shares have dropped 33.7% year to date (YTD). The Zacks Consensus Estimate for 2026 earnings has inched up by a penny to $1.04 per share over the past 30 days.
Price and Consensus: U
HubSpot: Another Zacks Rank #1 company, HubSpot's growth outlook is supported by rising enterprise adoption, platform consolidation and increasing AI monetization. The company continues to benefit from upmarket customer wins, multi-hub adoption and pricing initiatives, while AI-enabled offerings such as Customer Agent, Prospecting Agent and Data Agent are driving higher credit consumption and expanding recurring revenue opportunities.
The company believes that combining unified customer data with AI agents positions HubSpot as a comprehensive growth platform, enabling customers to automate marketing, sales and service workflows while increasing platform adoption over time.
HUBS shares have dropped 48.9% YTD. The Zacks Consensus Estimate for its 2026 earnings is pegged at $13.11 per share, down by a penny in the past 30 days.
Price and Consensus: HUBS
GitLab: This Zacks Rank #1 company is well positioned to benefit from the structural shift toward AI-powered software engineering. GitLab is winning larger enterprise deals as customers consolidate DevSecOps workflows on a single platform with integrated security, compliance, and AI. GitLab Ultimate anchors the upsell motion, while Dedicated and the Duo Agent Platform broaden deployment and monetization choices.
GitLab’s fiscal 2027 guidance points to continued revenue growth with non-GAAP operating profitability, supported by high cash generation and ongoing share repurchases. Remaining performance obligations of near $1.1 billion support revenue visibility as renewals and expansions flow through. Rising SaaS activity and early credit consumption indicate AI-assisted development is increasing usage across GitLab’s lifecycle.
GitLab shares have dropped 16.4% YTD. The Zacks Consensus Estimate for GTLB’s fiscal 2027 earnings is pegged at 81 cents per share, unchanged over the past 30 days.
Price and Consensus: GTLB
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HubSpot, Inc. (HUBS): Free Stock Analysis Report
Unity Software Inc. (U): Free Stock Analysis Report
GitLab Inc. (GTLB): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).