Deutsche Bank has upgraded two UK software stocks to buy and downgraded another as improving investor sentiment around artificial intelligence (AI) and resilient sector performance outweigh recent share-price declines.
The bank lifted Cerillion and Bytes Technology Group to "buy" ratings, while Softcat was cut to "hold." The upgrades reflect a shift in sentiment as concerns over AI's impact on traditional software business models ease, Deutsche Bank said. The UK software and IT services sector has rebounded sharply over the past three months, recovering roughly 42% from late-March lows and placing it slightly above its level at the start of 2026.
Cerillion received a target price of 1,400 pence, down from 1,575 pence previously, despite Deutsche Bank highlighting strong operational momentum. The company reported new orders of £39.6 million in the first half, double the prior-year period, while its back-order book surged 64% to a record £82.1 million. Cerillion's total pipeline reached £271 million, with an expected £10 million–£15 million in second-half revenue from the Omantel contract, largely driven by high-margin software licensing. Shares in Cerillion had fallen about 27% over the prior three months.
Bytes Technology Group was upgraded to buy following a July AGM update that showed double-digit year-over-year growth in gross invoiced income and gross profit across both public and private sectors. Deutsche Bank cited the company's positioning to benefit from AI-driven technology spending, including shifts in Microsoft's FY27 partner incentives that prioritize customer adoption, upselling, and cloud-workload growth over traditional software-license sales.
Softcat, meanwhile, was downgraded to hold from buy, with its target price raised to 2,140 pence from 1,800 pence. The stock has gained roughly 50% year-to-date and was trading at about 24 times calendar-2027 earnings. Deutsche Bank did not provide additional rationale for the downgrade beyond the rating change.
