Enterprise software is having a strange year. Most of the sector is sliding. But a small cluster of names is soaring — and Bank of America thinks the gap is only going to widen.
The five stocks BofA analyst Koji Ikeda calls the “Fab Five” — Datadog Inc. (DDOG), JFrog Ltd. (FROG), MongoDB Inc. (MDB), Snowflake Inc. (SNOW), and Twilio Inc. (TWLO) — are up 30% on average in 2026. Meanwhile, the iShares Expanded Tech-Software Sector ETF (IGV) is down 12%. That's a 42-percentage-point gap, and it's not just a fluke.
Ikeda maintains Buy ratings on all five, saying recent earnings showed solid execution, favorable AI exposure, differentiated products, and effective go-to-market strategies. “We think the setup is attractive for the rest of 2026,” he said.
The Gap Is Even Wider Since Earnings
The divergence has only grown since quarterly reports. According to BofA, Datadog shares surged 58% post-earnings, Twilio gained 38%, Snowflake climbed 37%, and JFrog advanced 43%. MongoDB rose a more modest 5%, but the bank says it remains confident in the company's long-term outlook. Collectively, the five stocks gained an average of 36% after earnings.
Why AI Is Helping Them
A key reason behind the optimism is AI. Datadog's AI-related business is growing at more than 100% annually and already represents over 10% of total revenue. Snowflake's suite of AI products, including Cortex AI and Cortex Code, helped drive product revenue growth acceleration to 34% year-over-year in its latest quarter. Twilio is also seeing momentum from voice AI products, while both JFrog and MongoDB have reported increasing adoption among AI-focused customers and laboratories.
The five are “AI beneficiaries and will benefit from the tailwinds for years to come,” Ikeda wrote.
The numbers back that up. Datadog's revenue growth accelerated to 32% year-over-year in the first quarter, up from 29% previously. JFrog's cloud revenue growth reached 50%, compared with 42% in the prior quarter. Snowflake's product revenue growth accelerated to 34% from 30%, while Twilio's gross-profit-dollar growth improved to 16% from 10%. MongoDB's Atlas revenue growth edged higher to 29.4%.
Importantly, the bank notes that management teams remain conservative in their guidance despite strong performance, leaving room for additional earnings beats and upward forecast revisions in the coming quarters.
Looking ahead, the bank expects investors to closely monitor whether AI demand continues to accelerate and whether enterprise adoption of new AI-powered software tools can sustain the group's growth premium. For now, BofA sees the “Fab Five” as among the best-positioned software names to capitalize on the next phase of AI-driven spending.
