Citi thinks this year may be the worst selling software names in the past, prompting it to update its top pick. The firm added Microsoft to the top of its list, noting that it is one of the most exposed stocks of “still flexible IT budgets” and has “defensive hybrid apps/infra features”. Analyst Tyler Radke also said the firm has high confidence in Microsoft’s “sustained double-digit growth,” led by momentum and long-term pricing power in its commercial cloud business. “The software has experienced a brutal start to 2022, with the IGV index down 30% year-on-year and the hypergrowth multiplier down about 70% from pre-pandemic levels,” Radke said. “With valuation multiples near multi-year lows, we believe sector de-rating is mostly done, especially Citi’s 10-year interest rate of 2.75% (vs 3.1 per cent) as of December-31. With a forecast of %).” He also said that valuations are back at several-year lows, leading to projections of a cut in the second half of the year. “Software valuations relative to the S&P 500 have fallen to several-year lows in multiple and hypergrowth and 10-year interest rates have risen dramatically. We believe the worst is over. But volatility could increase through risk projections, with a weak macro background and a tougher compass in 2H,” Radke said. Microsoft has been bought by Citi, with a price target of $364, up 40% from where the shares closed Thursday. —CNBC’s Michael Bloom contributed reporting.