Consecutive federal rate hikes have marred the growth of tech stocks in 2022. The tech-heavy Nasdaq composite has lost 28.8% year-to-date. However, demand for software goods and services is expected to remain robust despite experts expecting a recession.

According to SkyQuest Technology Consulting Pvt. Ltd., the global software market is projected to expand at a CAGR of 6.6% from 2021 to 2028. According to Gartner, total worldwide software spending is set to grow from about $790 billion this year to $879 billion in 2023, representing an 11.3% growth rate.

Moreover, despite macro headwinds, investors’ improving interest in software stocks is evident from the SPDR S&P Software & Services ETF’s (XSW) 2% gains over the past month.

Given the backdrop, we think Wall Street favorites Microsoft Corporation (MSFT) and Oracle Corporation (ORCL) are ideal portfolio additions now.

Microsoft Corporation (MSFT)

MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.

On November 16, 2022, MSFT and Lockheed Martin Corporation (LMT) announced a historic expansion of their strategic partnership to help power the Department of Defense’s next generation of technology (DOD). This one-of-a-kind partnership will deliver classified cloud innovations, AI, and digital transformation of the DOD.

On November 14, 2022, MSFT announced the MSFT Supply Chain Platform launch and the Microsoft Supply Chain Center preview. The platform aims to help organizations minimize the carbon impact on supply chains, and amid the growing decarbonization initiatives, this should gain popularity.

MSFT’s total revenues came in at $50.12 billion for the first quarter that ended September 30, 2022, up 10.6% year-over-year. Moreover, its gross margin came in at $34.67 billion, up 9.5% year-over-year. Also, its operating income came in at $21.52 billion, up 6.3% year-over-year.

Analysts expect MSFT’s revenue to increase 7.2% year-over-year to $212.46 billion in 2023. Its EPS is expected to increase 3.7% year-over-year to $9.55 in 2023. It surpassed EPS estimates in three of four trailing quarters.

Over the past month, the stock has gained marginally to close the last trading session at $241.68. Wall Street analysts expect the stock to hit $292.58 in the near term, indicating a potential upside of 21.3%.

MSFT’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MSFT has a B grade for Stability and Quality. In the Software – Business industry, it is ranked #9 out of 53 stocks. Click here for the additional POWR Ratings for Value, Growth, Momentum, and Sentiment for MSFT.

Oracle Corporation (ORCL)

ORCL offers products and services that address enterprise technology environments. The company provides Oracle cloud software, including Oracle Fusion cloud enterprise resource planning (ERP) and Oracle Fusion cloud enterprise performance management.

On November 3, 2022, ORCL announced the launch of Oracle Public Safety Services, a new technology platform for law enforcement and first responders. The platform is a significant addition to the company’s products, with a unified hardware and software stack.

ORCL’s total revenues came in at $11.45 billion for the first quarter that ended August 31, 2022, up 17.7% year-over-year. Moreover, its cloud services and license support revenue came in at $8.42 billion, up 14.2% year-over-year. Also, its services revenue came in at $1.36 billion, up 74.3% year-over-year.

Analysts expect ORCL’s revenue to increase 16.1% year-over-year to $49.29 billion in 2023. Its EPS is expected to increase marginally year-over-year to $4.94 in 2023. Over the past six months, it has gained 10.2% to close the last trading session at $79.20. Wall Street analysts expect the stock to hit $87.30 in the near term, indicating a potential upside of 9.6%.

ORCL’s overall B rating indicates a Buy in our proprietary rating system. It also has a B grade for Sentiment and Stability. In the Software – Application industry, it is ranked #21 out of 141 stocks.

Click here for the additional POWR Ratings for Value, Momentum, Growth, and Quality for ORCL.

MSFT shares were trading at $239.71 per share on Friday afternoon, down $1.97 (-0.82%). Year-to-date, MSFT has declined -28.06%, versus a -15.96% rise in the benchmark S&P 500 index during the same period.

About the Author: Rashmi Kumari

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...

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