With rapid digitalization, growing software spending, and widening demand for enterprise applications, the software industry is blooming. Also, increasing data-driven analytics, and advancements in emerging technologies like AI, ML, IoT, blockchain, and 5G offer new growth avenues to the market.
Given the industry tailwinds, fundamentally sound software stocks Intuit Inc. (INTU), Open Text Corporation (OTEX), and Workday, Inc. (WDAY) could be ideal additions to the portfolio for now.
As per Gartner, worldwide software spending is expected to increase 13.9% year-over-year to total $1.04 trillion in the current year, and overall IT spending is poised to hit $5.06 trillion, which is up 8% from 2023. In the year, planning and initiatives of enterprises towards genAI will likely drive tech spending this year and beyond.
Revenue in the software market is projected to hit $698.80 billion, and most revenue ($353.50 billion) is expected to be generated in the U.S. The growth rally is to continue as businesses highly rely on software solutions in order to streamline their operations, enhance customer experience, gain data-driven insights, and enhance system security.
With this, the software market is projected to reach $858.10 billion by 2028, exhibiting growth at a CAGR of 5.3%.
Further, with the wide adoption of enterprise applications worldwide offering enhanced collaboration, improved efficiency, and connected data, the enterprise application market is expected to value $551 billion by 2032, growing at a CAGR of 6.8%.
In light of these encouraging trends, let's look at the fundamentals of the three best software stock picks.
Stock #3: Intuit Inc. (INTU)
INTU offers financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals internationally. It operates through four segments: Small Business & Self-Employed; Consumer; Credit Karma; and ProTax.
On June 13, INTU signed an agreement to acquire technology from leading mobility risk intelligence provider Zendrive and the transaction is expected to close in fourth quarter of fiscal 2024. The strategic acquisition will allow INTU Credit Karma to accelerate Karma Drive and help members save on auto insurance.
On the same day, INTU previewed its new revenue intelligence technology, a system of always-on predictive and generative artificial intelligence models designed to proactively give marketers opportunities to win more revenue. Mailchimp's revenue intelligence will provide powerful AI and automation tools to assist businesses find and win untapped revenue.
For the third quarter that ended on April 30, 2024, INTU's total net revenue increased 11.9% year-over-year to $6.74 billion. Its non-GAAP operating income grew 10.5% from the year-ago value to $3.71 billion. The company's non-GAAP net income came in at $2.80 billion and $9.88, up 11.1% and 10.8% from the prior year's quarter, respectively.
Street expects INTU's EPS for the fourth quarter (ending July 2024) to increase 12.6% year-over-year to $1.86 and its revenue for the same quarter is expected to grow 13.8% year-over-year to $3.09 billion. Furthermore, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
INTU's stock has gained 15.3% over the past month and 46.4% over the past year to close the last trading session at $660.58.
INTU's solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B grade for Growth, and Sentiment. Within the Software - Application industry, INTU is ranked #34 out of 132 stocks.
Click here to access additional ratings of INTU (Value, Stability, and Momentum).
Stock #2: Open Text Corporation (OTEX)
Headquartered in Canada, OTEX provides information management software and solutions. It provides content services, including content collaboration and intelligent capture to records management, collaboration, e-signatures, and archiving.
On June 14, OTEX achieved "fully authorized" status by the FedRAMP for its Cloud for Government solution in the United States which includes OpenText Extended ECM and OpenText AppWorks, two core products within the OpenText Content Cloud portfolio. The new FedRAMP authorized solution enhances federal agencies' ability to deliver a seamless total citizen experience.
On May 22, OTEX purchased Pillr, an MDR platform from Novacoast, Inc. The platform provides a managed detection and response (MDR) platform for MSPs integrated with OTEX's cybersecurity.
The strategic acquisition accelerates OTEX's cybersecurity product roadmap to provide key features including API integrations and product/pricing bundling for MSPs seeking a comprehensive solution to protect, detect and respond to cybersecurity threats.
For the third quarter that ended March 31, 2024, OTEX's total revenues grew 16.3% year-over-year to $1.45 billion. Its non-GAAP operating income increased 29% year-over-year to $431.60 million. Net income attributable to OpenText and non-GAAP EPS came in at $98.30 million and $0.94, up 70.8% and 28.8% from the prior year's quarter, respectively.
In addition, the company's adjusted EBITDA increased 27% year-over-year to $463.70 million. Its adjusted free cash flow rose 13.9% from the prior year's quarter to $348.20 million.
Analysts expect OTEX's EPS for the fourth quarter (ended June 2024) to increase 15% year-over-year to $1.05. For the fiscal year 2024, the company's revenue and EPS are expected to grow 29.6% and 27.9% year-over-year to $5.81 billion and $4.21. Also, OTEX topped the consensus EPS and revenue estimates in each of the trailing four quarters.
Shares of OTEX have surged 7.1% over the past month to close the last trading session at $31.07.
OTEX's POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
OTEX has an A grade for Value and a B grade for Growth. The stock is ranked #27 among 132 stocks in the Software - Application industry.
In addition to the POWR Ratings I've just highlighted, you can see OTEX's ratings for Quality, Stability, Sentiment, and Momentum here.
Stock #1: Workday, Inc. (WDAY)
WDAY provides enterprise cloud applications internationally. The company's applications help customers to plan, execute, analyze, and extend to other applications and environments to manage their business and operations.
On June 17, WDAY entered into a new partnership with SkillStorm to deliver Workday-certified technical consultants across a range of business domains. This partnership was designed to help WDAY customers access purpose-built teams of skilled and certified WDAY resources, helping increase productivity.
On June 12, WDAY announced that Clemson University selected its Financial Management, Workday Human Capital Management, and Workday Strategic Sourcing to enable operational excellence, drive digital transformation, and deliver enhanced experiences for its faculty, staff, and student workers.
Also, on June 3, WDAY and Google Cloud expanded their partnership to bring new generative AI capabilities to enhance how customers build and manage apps on Workday. Through the strategic partnership, WDAY will use Gemini models and Vertex AI to enable gen AI capabilities within Workday Extend.
This will help WDAY's customers to optimize business performance, generate powerful business insights, and expedite transaction and closing processes.
During the first quarter that ended April 30, 2024, WDAY's total revenues rose 18.2% year-over-year to $1.99 billion and the company's net income came in at $107 million. Its non-GAAP net income per share increased 30.8% from the prior year's quarter to $1.74. The company's free cash flows stood at $291 million, up 33.5% from the prior year's quarter.
Street expects WDAY's EPS for the second quarter (ending July 2024) to increase 15.1% year-over-year to $1.65. Its revenue for the current quarter is expected to grow 15.9% year-over-year to $2.07 billion. Also, the company has topped the consensus revenue and EPS estimates in all of the trailing four quarters.
WDAY's shares have gained 8% over the past month and 1% over the past year to close the last trading session at $225.70.
WDAY's sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and a B grade for Sentiment and Quality. Within the same industry, WDAY is ranked #26 out of 132 stocks.
In addition to the POWR Ratings highlighted above, you can check WDAY's ratings for Value, Stability, and Momentum here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these "death trap" stocks are lurking in your portfolio:
INTU shares were trading at $659.90 per share on Wednesday afternoon, up $3.68 (+0.56%). Year-to-date, INTU has gained 5.89%, versus a 16.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
3 Software Stocks With High Q2 Earnings Prospects to Buy Now StockNews.com
