The software industry is booming thanks to widespread digital transformation efforts across industries worldwide. Therefore, investors could watch fundamentally robust software stocks Akamai Technologies, Inc. (AKAM), Tenable Holdings, Inc. (TENB), and JFrog Ltd. (FROG) now.

The software industry is key to economic progress and is set for continued growth in the upcoming years. Gartner forecasts worldwide software spending to reach $1.03 trillion in 2024, up 12.7% from the previous year. Furthermore, the global software market is expected to reach $1.79 trillion, growing at a CAGR of 11.7% by 2032.

Moreover, the rapid incorporation of cloud, IoT devices, AR, VR, and mixed reality (MR) has infused significant growth in the software industry. Moreover, double-digit growth in enterprise security spending is anticipated this year.

Furthermore, increased government spending on cyber security solutions and the need for a defense cybersecurity system to prevent cyber-attacks amid the rising investments by businesses in 5G, IoT, AI, ML, cloud, and Big Data, have contributed to the growth of the cybersecurity market. Consequently, the global cyber security market is estimated to grow to $500.70 billion at a CAGR of 12.3% through 2030.

To that end, let’s examine the fundamentals of the three stocks to watch in the software industry.

Akamai Technologies, Inc. (AKAM)

AKAM provides cloud computing, security, and content delivery services in the U.S. and internationally. Akamai Connected Cloud, the company’s platform, is comprised of an edge and cloud architecture and underlying network for cloud computing, security, and content delivery services.

On April 15, AKAM added a new media-optimized offering based on NVIDIA GPUs to its growing cloud portfolio. With the NVIDIA RTX 4000 Ada Generation GPU, the new cloud-based service provides better productivity and economics for companies in the media and entertainment industry that are challenged with processing video content faster and more efficiently.

On April 9, AKAM launched Akamai Shield NS53, a product that protects on-premises Domain Name System (DNS) infrastructure from resource exhaustion attacks. These attacks overwhelm servers so that they can no longer respond to valid DNS queries.

AKAM’s trailing-12-month cash from operations of $1.35 billion is significantly higher than the industry average of $85.44 million. Its trailing-12-month EBIT and net income margins of 18.56% and 14.37% are 289.7% and 447.8% higher than the industry averages of 4.76% and 2.62%, respectively.

For the fiscal fourth quarter that ended December 31, 2023, AKAM’s revenue and non-GAAP income from operations stood at $995.02 million and $302.67 million, up 7.2% and 17.5% year-over-year, respectively. Moreover, its adjusted EBITDA increased 11.6% from the prior-year quarter to $425.99 million.

For the same quarter, its non-GAAP net income and non-GAAP net income per share stood at $262.63 million and $1.69, up 21.3% and 23.4% from the year-ago quarter, respectively.

Street expects AKAM’s revenue and EPS for the fiscal first quarter that ended March 2024 to increase 8% and 14.9% year-over-year to $988.93 million and $1.61, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.

The stock has gained 22.8% over the past year to close the last trading session at $101.33. Over the past nine months, it has gained 9.8%.

AKAM’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Within the Software – Business industry, AKAM is ranked #13 out of 44 stocks.

For AKAM’s ratings for Growth, Value, Momentum, Stability, Sentiment, and Quality, click here.

Tenable Holdings, Inc. (TENB)

TENB is a provider of exposure management solutions that manages, measures, and compares cybersecurity risk in complex information technology (IT) environments. 

On March 19, TENB expanded Tenable Cloud Security cloud-native application protection platform (CNAPP) capabilities for Kubernetes on-premises and public cloud environments. These latest advancements extend TENB’s CNAPP benefits, such as contextual risk visibility, preventive security controls, and zero trust / least privilege enforcement, to Kubernetes.

TENB’s trailing-12-month cash from operations of $149.86 million is 75.4% higher than the industry average of $85.44 million. Its trailing-12-month gross profit and levered FCF margins of 77.02% and 21.11% are 58.1% and 130.5% higher than the industry averages of 48.71% and 9.16%, respectively.

For the fiscal fourth quarter that ended December 31, 2023, TENB’s revenue and non-GAAP gross profit stood at $213.31 million and $171.86 million, up 15.5% and 18.6% year-over-year, respectively. Moreover, its unlevered free cash flow increased 34.8% from the year-ago quarter to $43.29 million.

For the same quarter, its non-GAAP net income and non-GAAP earnings per share stood at $30.16 million and $0.25, up 112.3% and 108.3% from the prior-year quarter, respectively.

Street expects TENB’s revenue and EPS for the fiscal first quarter that ended March 2024 to increase 13.1% and 58.7% year-over-year to $213.61 million and $0.17, respectively. The company surpassed consensus revenue and EPS estimates in the trailing four quarters.

The stock has gained 6.4% over the past nine months to close the last trading session at $45.71. Over the past six months, it has gained 3.7%.

TENB’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.

TENB has an A grade for Growth. It is ranked #7 out of 22 stocks within the B-rated Software – Security industry.

Click here for the additional POWR Ratings for TENB (Value, Momentum, Stability, Sentiment, and Quality).

JFrog Ltd. (FROG)

FROG provides an end-to-end hybrid software supply chain platform in the U.S., Israel, India, and internationally. 

On February 28, FROG announced a new technology integration with Qwak, a fully managed ML Platform, that brings machine learning models alongside traditional software development processes to streamline, accelerate, and scale the secure delivery of ML applications.

On February 20, FROG and Carahsoft Technology Corp., the Trusted Government IT Solutions Provider, partnered to empower U.S. Government organizations to safeguard their software supply chains with automated DevSecOps workflows to secure software services consumed by citizens.

FROG’s partnership with Carahsoft will provide public sector organizations with reliable solutions that incorporate security from the start, unburdening DevOps teams from complex and time-consuming remediation processes and ensuring compliance. This should also bode well for FROG.

FROG’s trailing-12-month gross profit and levered FCF margins of 77.99% and 30.16% are 60.1% and 229.3% higher than the industry averages of 48.71% and 9.16%, respectively.

For the fiscal fourth quarter that ended December 31, 2023, FROG’s total subscription revenue and non-GAAP gross profit stood at $97.26 million and $82.29 million, up 27.1% and 28.5% year-over-year, respectively. Moreover, its free cash flow increased 397.8% from the year-ago quarter to $31.98 million.

For the same quarter, its non-GAAP net income and non-GAAP net income per share stood at $21.49 million and $0.19, up 437.8% and 375% from the prior-year quarter, respectively.

Street expects FROG’s revenue and EPS for the fiscal first quarter that ended March 2024 to increase 23.6% and 138.5% year-over-year to $98.62 million and $0.14, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.

The stock has gained 80% over the past year to close the last trading session at $37.49. Over the past six months, it has gained 57%.

FROG’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.

FROG has an A grade for Sentiment and a B for Growth and Quality. Within the B-rated Software – Application industry, it is ranked #43 out of 133 stocks.

To see additional POWR Ratings for Value, Momentum, and Stability for FROG, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

AKAM shares were unchanged in premarket trading Wednesday. Year-to-date, AKAM has declined -14.38%, versus a 6.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Neha Panjwani

From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance. More...

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