Are These The Best Software Stocks To Buy For Future Growth?
Software stocks have been a promising investment theme in recent years. When we have big names like Adobe (ADBE Stock Report) and Salesforce (CRM Stock Report) leading the industry, we can safely assume that we are looking at the industry of the future. These top software stocks could be an easy choice for investors who do not want to spend too much time understanding the software business.
But what if you want to learn more about the industry? You may be interested to learn what’s fuelling the growth of these top software stocks to watch. And who knows, you might be able to find something that tickles your fancy. The pandemic definitely accelerated the shift towards cloud computing as corporations geared up their spending. That played no small part in driving the revenue for these growth companies. As you may or may not know, there are a number of different areas within the broader cloud market. Amazon (AMZN Stock Report) Web Services is the leader in cloud infrastructure services, including what’s known as the infrastructure as a service (IaaS). This is one of the fastest growth drivers in the broader cloud market. On the other hand, Microsoft (MSFT Stock Report) is the leader in enterprise software as a service (SaaS) with commercial products like productivity software Microsoft 365.
As a matter of fact, cloud computing has been on the rise for the past two decades. Wall Street is now betting that the pandemic will bring a step-change in the uptake of the technology. The technology has already accounted for 15% of the $1.56 trillion spent on IT last year. This is up from 7% in 2015 according to analysts at Morgan Stanley. For this reason, many believe that the increased reliance on cloud services during this trying time will only cause this shift in IT spending to accelerate. The BVP Nasdaq Emerging Cloud Index, which tracks a portfolio of cloud computing names, is up by over 70% this year. That is just a sign of the importance of cloud computing during the pandemic. With all that in mind, are these the top software stocks to buy this month?
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Top Software Stocks To Watch: Workday Inc.
First, up the list, human resources software platform Workday Inc. (WDAY Stock Report) is one top software stock to watch. That’s after it posted its third quarterly report that displayed strong growth. From its third quarter ended October 31, total revenue rose 18% year over year to $1.11 billion. The company saw record demand for its products. Besides its core Human Capital Management platform, Workday also reported robust momentum in its financial management and strategic sourcing solutions.
For the record, the California-based software maker has recorded double-digit profit growth three of the past four quarters, and double-digit sales growth every quarter of that period.
Despite its strong performance, the company warned of negative effects from the pandemic that could weigh on growth next year. In particular the headwinds “will be more fully evident in next year’s subscription revenue”. As such, it is no surprise that the stock has fallen about 7% since reporting results. While many analysts maintained their previous calls on the stock, some trimmed their price targets marginally. Considering these factors, would you be buying WDAY stock on the dip?
Top Software Stocks To Watch: Palantir Technologies
Palantir Technologies (PLTR Stock Report) has been climbing steadily as the data analytics company appears to be on the path to achieve positive cash flows. And once it does that, you could expect the company to climb even higher. The recent bullish stock movement is partly due to Palantir’s excellent third-quarter earnings reported on November 12. The company saw its revenue rising 52% year-over-year and its adjusted operating income was $73.1 million. Besides, the company is expecting fourth-quarter revenue to range from $299 million to $301 million, up 30% to 31% from last year. Furthermore, the company announced new contracts including a $300 million contract with an aerospace customer and a $91 million contract with the U.S. Army.
Palantir doesn’t just have growing revenues. The company appears to be on track to raise contribution margins. That’s important because it shows the actual profitability of the business in comparison to variable expenses. That can give us a better idea of how Palantir’s bottom line will do in the future as the company grows its revenue.
The big question here is for investors where Palantir shares will go from here. This is a solid business with strong relationships with U.S. government agencies. Given that PLTR stock has soared nearly 140% in the past month, would you be tempted to make a buying move before it goes up even more? Now, Palantir expects to make more than $1 billion in revenue this year. On that note, will you consider PLTR stock as a software stock with huge potential upside?
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Top Software Stocks To Watch: Cloudflare
The content delivery network and web security provider Cloudflare (NET Stock Report) is one top software stock to watch in the stock market. The company saw its stock price surge nearly 30% since the start of this month. This comes after the company handily beat its third-quarter estimates while revenue guidance came in above Wall Street targets. The company reported a loss of 2 cents per adjusted share, narrowing its loss from the year-earlier period. Meanwhile, revenue jumped 54% to $114.2 million.
“All sudden everyone’s at home, and so people are connecting and doing work online from new places,” Zatlyn said. “What you’re seeing along with that is a large increase in the number of cyberattacks, which is sad, but it’s true: They’re using the fact that employees are working at home, not on their corporate networks, as a weak link to go and attack.”
The silver lining is that cybersecurity technology is now better and cheaper than before. And Cloudflare is poised to benefit immensely as its services would help many corporations fend off various forms of cyber attacks. With so much growth prospects centering around Cloudflare, is NET stock the best software stock to buy?