Technological innovation, rising consumer demand, and the increasing need for secure and efficient solutions across diverse sectors drive the software industry’s growth. So, investors could consider investing in top software stocks Microsoft Corporation (MSFT), Salesforce, Inc. (CRM), and Qualys, Inc. (QLYS) this week.

The software industry thrives on AI capabilities, full-stack developer demand, cost-effective cloud computing, and a robust focus on DevSecOps for cybersecurity. The U.S. software industry is anticipated to reach $338.20 billion this year. The revenue is expected to expand at a CAGR of 4.16% to reach $414.70 billion by 2028.

Besides, the global software market will likely stand at $659 billion in 2023. The revenue is expected to expand at a CAGR of 5.4% to reach $858.10 billion by 2028. In global comparison, the U.S. is set to generate the highest revenue in 2023.

Moreover, the growing use of IoT devices and intelligent technologies is expected to elevate cyber threat instances. Hence, end-user organizations are expected to adopt advanced cybersecurity solutions to reduce the risk of cyber-attacks, fostering market growth.

The software security market thrives due to ongoing technological advancements, rising environmental consciousness, and a heightened demand for operational efficiency. The global cyber security market is projected to grow at a CAGR of 12.3% from 2023 to 2030.

Furthermore, the global demand for Application Development Software is growing due to consumer preferences, with rising demand being a key factor. As businesses and individuals seek more sophisticated and versatile solutions, the software market responds with a broader range of options, driving the overall market expansion for application development tools.

The global Application Development software market is anticipated to grow at a CAGR of 20.6% until 2028.

Considering these conducive trends, let’s examine the fundamentals of the three software stock picks.

Microsoft Corporation (MSFT)

MSFT is a global technology company that develops and supports various software, services, devices, and solutions. It operates in three key segments: Productivity and Business Processes (Microsoft 365, Office, LinkedIn); Intelligent Cloud (Azure, server products); and More Personal Computing (Windows, Surface, Xbox, search, and advertising). The company distributes its products through OEMs, distributors, digital marketplaces, and retail stores worldwide.

On November 17, 2023, MSFT announced that its Ignite 2023 event emphasized a strong AI commitment, rebranding Bing Chat to Copilot, introducing custom AI chips for reduced GPU dependency, and unveiling new AI tools like Copilot for Azure. Overall, these developments showcase Microsoft’s strategic emphasis on widespread AI integration.

In the first quarter ended September 30, 2023, MSFT’s total revenue grew 12.8% year-over-year to $56.12 billion. The company generated operating income and net income of $26.90 billion and $22.29 billion, up 25% and 27% from the prior-year quarter. Also, its EPS increased 27.2% year-over-year to $2.99.

Street expects MSFT’s revenue and EPS to grow 15.6% and 18.7% year-over-year to $60.96 billion and $2.75 for the second quarter ending December 2023. The company has surpassed the EPS estimates in each of the trailing four quarters, which is impressive.

Shares of MSFT increased 55.6% over the past year and 56.9% year-to-date to close the last trading session at $376.17.

MSFT’s POWR Ratings reflect this positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MSFT has an A grade for Sentiment and a B for Stability and Quality. Within the B-rated Software – Business industry, it is ranked #12 out of 45 stocks.

In addition to the POWR Ratings stated above, one can access MSFT’s additional Growth, Value, and Momentum ratings here.

Salesforce, Inc. (CRM)

CRM is a global Customer Relationship Management technology leader, connecting companies and customers. Their services cover sales, analytics, personalized customer support, and a flexible platform for building apps. Additional offerings include marketing, commerce, analytics (Tableau), integration services (MuleSoft), and industry-specific solutions. It caters to businesses of all sizes, including small and medium-sized enterprises, through products like Salesforce Essentials.

On September 12, CRM and Williams-Sonoma, Inc. (WSM) teamed up to enhance home shopping experiences. The collaboration focuses on a customer-centric approach, providing a comprehensive view of brand preferences. Leveraging Salesforce’s AI, the partnership aims to anticipate needs, accelerate time to value, streamline B2B sales, and foster collaboration for efficient innovation and growth.

During the second quarter ended July 31, 2023, CRM’s total revenues amounted to $8.60 billion, up 11.4% year-over-year. The company’s non-GAAP income from operations and net income increased 77.1% and 76% year-over-year to $2.72 billion and $2.09 billion, respectively. Its free cash flow grew 379.4% from the prior-year quarter to $628 million.

For the third quarter of the fiscal year 2024, the company expects revenues ranging from $8.70 to $8.72 billion, reflecting approximately 11% year-over-year growth. Non-GAAP EPS is projected to be in the range of $2.05 to $2.06.

Analysts expect CRM’s revenue and EPS to grow 11.3% and 46.9% year-over-year to $8.72 billion and $2.06 for the third quarter ended October 2023. The company has surpassed the revenue and EPS estimates in each of the trailing four quarters.

The stock has soared 42.8% over the past year and 67% year-to-date to close the last trading session at $221.45.

CRM’s POWR Ratings reflect this sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

CRM has an A grade for Growth and Sentiment and a B for Stability and Quality. Within the Software – Application industry, it is ranked #10 out of 130 stocks.

To see CRM’s additional POWR Ratings for Value and Momentum, click here.

Qualys, Inc. (QLYS)

QLYS is a global cloud-based IT, security, and compliance solutions provider. Its QLYS Cloud Platform offers Vulnerability Management and Threat Protection services, enabling customers to manage IT assets, analyze security data, and implement remediation actions. QLYS delivers integrated workflows to diverse industries through sales teams and channel partners.

On November 15, QLYS announced its collaboration with Microsoft in the Security Copilot Partner Private Preview, leveraging its expertise in cloud-based IT, security, and compliance solutions. This partnership focuses on contributing to Security Copilot’s product development, validating scenarios, and enhancing extensibility through APIs, aiming to manage cyber risk using AI proactively.

Security Copilot, powered by AI, enables quick threat response and risk assessment within minutes, aligning with QLYS’ Enterprise TruRisk Platform for effective cyber risk measurement and elimination.

On October 31, QLYS launched its award-winning VMDR TruRisk, FixIT, and ProtectIT capabilities in AWS Marketplace, providing specially priced and packaged solutions tailored for small-to-medium-sized businesses (SMBs) and small-to-medium enterprises (SMEs).

In the third quarter ended September 30, 2023, QLYS’ revenues increased 13.1% year-over-year to $142 million. The company achieved non-GAAP gross profit of 117.95 million, up 15.4% from the previous year quarter. Its non-GAAP income from operations and net income amounted to $62.89 million and $56.68 million, up 31.1% and 53.9% year-over-year.

For the nine months ended, its non-GAAP free cash flows grew 42.7% year-over-year to $203.50 million.

For the fourth quarter of 2023, the company expects revenues between $144.1 million and $145.1 million, up 10% to 11% compared to the same quarter in 2022.

QLYS’ revenue and EPS are expected to grow 10.7% and 22.9% year-over-year to $144.85 million and $1.24 for the fourth quarter ending December 2023, respectively. The company has surpassed the revenue and EPS estimates in each of the trailing four quarters.

Shares of QLYS increased 38.9% over the past year and 55.9% year-to-date to close the last trading session at $174.95.

QLYS’ POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

QLYS has an A grade for Quality. Within the B-rated Software – Security industry, it is ranked #5 out of 23 stocks.

Click here for QLYS’s additional Growth, Value, Momentum, Stability, and Sentiment ratings.

What To Do Next?

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MSFT shares were trading at $370.10 per share on Friday morning, down $6.07 (-1.61%). Year-to-date, MSFT has gained 55.69%, versus a 18.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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