Citi thinks the worst of this year’s sell-off in software names may be in the past, leading it to update its top picks. The firm added Microsoft to the top of its list, noting that it’s one of the stocks most exposed to “still resilient IT budgets” and has “defensive hybrid apps/infra characteristics.” Analyst Tyler Radke also said the firm has high conviction in Microsoft’s “sustained double digit growth,” led by momentum in its commercial cloud business, and long-term pricing power. “Software has experienced a brutal start to 2022 with the IGV index down 30% year-to-date and hypergrowth multiples pulling back about 70% well below pre-pandemic levels,” Radke said. “With valuation multiples near multi-year lows, we believe the sector de-rating is mostly done, especially with Citi’s 10-year interest rate Dec-31 forecast for 2.75% (vs. 3.1% current).” He also said valuations are back to multiyear lows, which could lead to estimate cuts in the second half of the year. “Software valuation multiples relative to the S & P 500 and in hypergrowth have fallen to multi-year lows and have come as 10-year interest rates have risen dramatically. We believe the worst is over, but there could be increased volatility through risks to estimates, with a weaker macro backdrop and tough comps in 2H,” Radke said. Microsoft is buy rated by Citi, with a price target of $364, which is more than 40% from where the shares closed on Thursday. –CNBC’s Michael Bloom contributed reporting.