How to Make Money in a Bear Market: Two Undervalued Tech Stocks Positioned for Growth

The S&P North American Technology Software Index—tracking 111 companies—has fallen 24% from its September 2025 peak, officially entering bear market territory. Market pessimism about artificial intelligence disrupting traditional software demand has triggered this decline, but savvy investors can make money in a bear market by identifying fundamentals-driven opportunities that Wall Street has overlooked.

According to Morgan Stanley’s fourth-quarter CIO survey, software will be the fastest-growing IT sector in 2026, contradicting widespread bear market fears. In fact, established software vendors are positioned as the primary distribution channel for new generative AI capabilities. This disconnect between market sentiment and underlying fundamentals creates an attractive setup for value investors seeking to make money in a bear market.

Datadog: Capturing Share in an Expanding Market

Datadog develops observability software that helps organizations monitor IT infrastructure and application performance. The platform integrates roughly 24 products—far more comprehensive than most competitors—and includes an AI-powered anomaly detection engine called Watchdog that automates incident alerts and root cause analysis.

Fortress Research recently ranked Datadog as a leader in AI for IT operations, reflecting how the company has successfully integrated machine learning capabilities into its core offering. Gartner similarly recognized its leadership in observability platforms and digital experience monitoring. Morgan Stanley analyst Keith Weiss notes that Datadog’s ability to consolidate fragmented monitoring tools on a single platform—a top priority for IT departments—has made the company “the top share gainer in its core observability market.”

Recent financial results demonstrate momentum. Third-quarter revenue climbed 28% to $886 million, while remaining performance obligation (RPO) surged 53% to $2.8 billion, suggesting strong future revenue visibility. Non-GAAP net income rose 20% to $0.55 per share.

Arete Research analyst Adam Shepherd set a $260 target price, implying 102% upside from the current $129 level. However, the current valuation of 66 times earnings remains expensive relative to growth estimates of 19% annually through 2028. The stock may offer better entry points following a 20% pullback, making it suitable for patient, long-term investors in a bear market who can benefit from AI-driven adoption tailwinds.

Atlassian: AI Adoption Accelerating Across Multiple Customer Segments

Atlassian develops work management and service management software, best known for Jira—the industry standard for software development teams. The platform has expanded into non-technical departments like marketing, human resources, and finance, creating multiple growth avenues that few competitors can match.

Gartner ranked Atlassian as a leader in work management software across both DevOps and marketing categories—a distinction no other vendor achieved. The company has layered a generative AI assistant called Rovo on top of its platform, helping developers review code and enabling non-technical teams to automate workflows and surface insights.

September quarter results showed solid momentum. Revenue increased 21% to $1.4 billion, while RPO jumped 42% to $3.3 billion. Non-GAAP earnings climbed 35% to $1.04 per share. CEO Mike Cannon-Brookes highlighted that monthly active users engaging AI capabilities increased 50% to 3.5 million, demonstrating rising customer adoption.

Morgan Stanley analyst Keith Weiss set a $320 target price, suggesting 170% upside potential from the current $118 share price. At 30 times estimated earnings—with Wall Street projecting 22% annual growth through June 2027—the valuation appears reasonable for a company capturing secular AI adoption trends. Having fallen 63% from its peak amid bear market turmoil, Atlassian presents a compelling opportunity for investors seeking to make money in a bear market without overpaying.

Identifying Value in a Bear Market: What Investors Should Know

Successful bear market investing requires distinguishing between genuine business deterioration and temporary market pessimism. These two software leaders share common traits that separate them from value traps:

Growth Exceeds Earnings Multiples: Both companies are growing earnings at rates (19%-22%) significantly faster than their valuation multiples (30-66x), suggesting the market is pricing in overly pessimistic scenarios. This disparity creates opportunities for contrarian investors.

AI Integration, Not Disruption: Rather than facing AI-driven obsolescence, both Datadog and Atlassian are integrating AI as a core platform feature, allowing them to serve as the “delivery mechanism” Morgan Stanley identified in its CIO research.

Market Share Consolidation: In a bear market, customers often consolidate vendors to reduce complexity and costs. Both companies benefit from this trend through their comprehensive platform capabilities.

Analyst Consensus: Multiple research firms (Gartner, Forrester, Morgan Stanley) recognize these companies as leaders, providing analytical backing beyond market sentiment.

That said, neither stock will effortlessly deliver 102-170% returns. Atlassian faces a more attractive risk-reward profile with reasonable valuation multiples, while Datadog requires patience for valuations to normalize. Investors looking to make money in a bear market should build positions gradually, prioritizing quality fundamentals over pure upside speculation. A diversified approach holding both stocks alongside other software leaders positions portfolios to capture secular AI adoption while minimizing concentration risk.