The January Effect—the tendency for beaten-down stocks to rebound in the first month of the year as tax-loss selling pressure lifts—may be one of the most misunderstood phenomena in investing. While it doesn't guarantee gains, the pattern has historically shown up reliably enough in small-cap and depressed stocks to warrant attention. As 2026 begins, four AI software stocks that took significant beatings in 2025 appear positioned to benefit from this seasonal dynamic.

The Tax-Loss Mechanics

The January Effect stems from a simple dynamic: investors harvest tax losses by selling their worst-performing stocks in December, then cannot immediately repurchase those same securities without forfeiting the tax benefit due to the 30-day wash-sale rule. This creates an artificial air pocket in demand through late December.

When January arrives, that selling pressure lifts. Investors who wanted long-term exposure can finally buy back their positions. Others recognize depressed valuations and step in opportunistically. The result is often a measurable rebound in stocks that were sold primarily for tax reasons rather than fundamental deterioration.

Importantly, the January Effect earned its reputation not with large-caps but with small-caps and depressed stocks—precisely the profile of the four companies highlighted here.

GitLab (GTLB): Down 33%, But Growing 25-35%

GitLab has plunged approximately 33% over the trailing 12-month period, making it one of the most beaten-down names in the software sector. The decline reflects broader concerns about AI bubble valuations and questions about competition from Microsoft's GitHub.

But the fundamental picture tells a different story. GitLab has consistently generated revenue growth between 25% and 35% each quarter over the past two years. The company has introduced its own AI agents through its Duo Agent solution, which helps programmers write code and streamline their entire development workflow.

Analysts are taking notice of the disconnect between price and fundamentals. BTIG initiated coverage in December with a Buy rating and a $52 price target, suggesting significant upside from current levels. The consensus view holds that GitLab represents one of the best beaten-down stocks for investors seeking AI exposure.

nCino (NCNO): Down 22%, But AI Banking Adoption Accelerating

nCino has lost 21.7% over the trailing 12 months, caught up in the broader selloff of financial technology stocks. But the company's AI-powered solutions for the banking industry are gaining significant traction.

In the third quarter of fiscal 2026, more than 110 customers purchased nCino's Banking Advisor intelligence units. The company plans to have approximately 100 Banking Advisor capabilities available by fiscal year-end, up from just 18 announced in May—a dramatic expansion of its AI product portfolio.

The Zacks Consensus Estimate for nCino's fiscal 2026 earnings projects growth that makes the stock's decline appear disconnected from fundamentals. The company carries a Zacks Rank #1 (Strong Buy), reflecting expectations that its AI-driven banking solutions will drive demand throughout 2026 and beyond.

Samsara (IOT): Down 17%, But Projecting 92% Earnings Growth

Samsara, which provides connected operations solutions for physical operations, has declined 16.9% over the past year. The stock has been caught up in concerns about industrial spending and broader market rotation away from growth names.

Yet Samsara's AI-driven capabilities are demonstrating real-world results. The company's dual-facing AI dash cameras and real-time in-cab alerts have helped customers reduce accidents by up to 73% after 30 months of deployment. In the third quarter of fiscal 2026, Samsara introduced new AI-powered features including Automated Coaching, Group Coaching, and Workflow Automations.

The Zacks Consensus Estimate projects Samsara's fiscal 2026 earnings at 50 cents per share—an increase of 92.31% year over year. That kind of earnings acceleration suggests the stock's decline reflects sentiment rather than fundamentals.

Global-e Online (GLBE): Down 27%, But AI Commerce Emerging

Global-e Online, which enables cross-border e-commerce for brands and retailers, has fallen 27.4% over the trailing 12 months. The decline reflects concerns about consumer spending and e-commerce growth deceleration.

But Global-e is positioning itself at the forefront of AI-powered commerce. The company is actively preparing its solutions to work with agentic commerce platforms—AI systems that can autonomously browse, compare, and purchase products on behalf of consumers. Early traction with AI-driven sales channels, including transactions initiated through platforms like ChatGPT, suggests the company could benefit from the next wave of e-commerce innovation.

The Zacks Consensus Estimate projects Global-e's fiscal 2026 earnings at 94 cents per share—an increase of 177.06% year over year. This expected earnings growth rate makes the stock's 2025 decline appear particularly disconnected from underlying fundamentals.

Important Caveats

While the January Effect provides a historical pattern worth understanding, investors should approach these opportunities with clear-eyed risk awareness:

  • The effect isn't guaranteed: Seasonal patterns show up often enough to matter but don't work every year. Using the January Effect as one input among many makes more sense than betting the portfolio on it.
  • Fundamentals still matter: The best January Effect candidates are stocks sold for tax reasons despite sound fundamentals. Companies with genuine business deterioration may continue declining regardless of seasonal dynamics.
  • Timing is imprecise: Research suggests the small-cap rebound often begins in mid-December rather than January, with much of the relative move typically completed by early spring. Traders who anticipated the pattern may have already positioned.
  • Volatility remains elevated: All four stocks discussed here carry significant volatility. Position sizing should reflect the potential for continued price swings even in a favorable scenario.

Investment Considerations

For investors seeking exposure to AI software companies at potentially attractive valuations, the four stocks highlighted here share important characteristics: meaningful revenue growth, expanding AI product portfolios, strong earnings growth projections, and price declines that appear driven more by sentiment than fundamentals.

Whether the January Effect provides an immediate catalyst or these stocks rebound over a longer period, the combination of AI tailwinds and depressed valuations creates a potentially asymmetric risk-reward profile. Investors with appropriate time horizons and risk tolerance may find the early 2026 setup in these names compelling.

As always, thorough due diligence and position sizing appropriate to individual circumstances should guide any investment decision.