US Application Software: 2Q26 HR Preview: Improving Sentiment as AI Fears Shift; Prefer PCTY

研报英文原文证据摘录

US Application Software: 2Q26 HR Preview: Improving Sentiment as AI Fears Shift; Prefer PCTY

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28 Jul 2026 02:49:39 ET │ 27 pages

US Application Software

2Q26 HR Preview: Improving Sentiment as AI Fears Shift; Prefer PCTY

CITI'S TAKE

Steven Enders, CFA AC

Sentiment on HR software has started to improve in the past couple of +1-415-951-1745

months with short interest declining as both PAYC and PCTY have steven.enders@citi.com

outperformed the IGV. We believe fundamentals are generally stable,

setting up more favorably for PCTY with stronger web traffic trends and George Kurosawa, CFA

levers to pull to drive growth, with most focus on recent AI investments +1-415-658-4247

impact to the upcoming FY27 guide, where we believe buyside expectations george.kurosawa@citi.com

have reset. We prefer PCTY into the print, seeing a clearer path to sustain

revenue growth with some concerns on lingering PAYC execution

challenges; we reiterate our Buy rating on PCTY.

Outlook — We see an improving outlook for HR software with sentiment beginning

to improve as investors better appreciate the lower AI disintermediation risk and a

more certain range of potential outcomes for the segment. HR software has

outperformed software and market broadly over the past ~month (>20pts

outperformance vs IGV QTD for PAYC and PCTY) despite both trading at a premium

to software on ex-SBC FCF metrics (PAYC at 20x NTM, PCTY at 22x) as short interest

has declined. Despite the rerating, we continue to believe AI monetization will

become critical to investors; we prefer PCTY with a clear AI strategy and a broader

portfolio of AI solutions, with potential to reaccelerate in the MT.

PAYC — We are cautious on PAYC into 2Q26 results as we believe fundamentals