Like last year, software stocks may suffer this year as the uncomfortably high inflation and a tight labor market might compel the Fed to keep raising interest rates this year. However, given the industry’s long-term growth prospects and the growing interest in AI, this could be the right time to invest in quality software stocks at reasonable valuations.

To that end, I have picked Oracle Corporation (ORCL), Adobe Inc. (ADBE), Synopsys, Inc. (SNPS), and Autodesk, Inc. (ADSK) for reasons discussed throughout this article.

Before discussing what makes these stocks solid long-term investments, let’s see what’s happening in the software space.

With the growing use of AI in software development, the software industry is expected to benefit significantly. AI can assist in the development of more intelligent, efficient, and effective software systems. Moreover, continued tech upgrades by enterprises should drive the software industry’s growth.

According to Granter (IT), the software segment spending is expected to grow 9.3% in 2023. The global software market is estimated to grow at an 8.5% CAGR by 2027.

Let’s discuss the fundamentals of ORCL, ADBE, SNPS, and ADSK to understand why they are well-positioned to generate solid returns in the long run.

Oracle Corporation (ORCL)

ORCL provides products and services that address all aspects of corporate IT environments, including applications, platforms, and infrastructure worldwide. The company operates through cloud services and license support; cloud license; on-premises license; hardware; and services segments.

On February 13, 2023, ORCL and Uber Technologies, Inc. (UBER) announced a seven-year strategic cloud collaboration to boost UBER’s innovation in bringing new products to market and increasing profitability. This strategic alliance highlights Oracle Cloud Infrastructure’s strong market momentum and acceleration in comparison to other hyperscalers.

ORCL’s trailing-12-month gross profit and EBITDA margins of 74.50% and 38.79% are 48.5% and 293.2% higher than the industry averages of 50.17% and 9.87%, respectively.

ORCL’s net revenue increased 17.9% year-over-year to $12.40 billion for the third quarter that ended February 28, 2023. Its adjusted operating income came in at $5.19 billion, up 7.7% year-over-year. The company’s non-GAAP net income and non-GAAP EPS came in at $3.38 billion and $1.22, up 9% and 8% year-over-year, respectively.

Analysts expect ORCL’s revenue to increase 17.4% year-over-year to $49.84 billion in 2023. Its EPS is estimated to increase 2.9% year-over-year to $5.04 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past nine months, the stock has gained 25.9% to close the last trading session at $85.26.

ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

ORCL has a B grade for Stability and Sentiment. In the Software – Application industry, it is ranked #32 out of 133 stocks. Click here for the additional POWR Ratings for Value, Momentum, Growth, and Quality for ORCL.

Adobe Inc. (ADBE)

ADBE operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising.

On February 23, 2023, ADBE established a partnership with Qualcomm Incorporated (QCOM) to support its digital strategy and the strategies of its affiliated companies.

ADBE’s president of digital experience business, Anil Chakravarthy, said, “By adopting Adobe’s enterprise applications, Qualcomm has an end-to-end solution that will enhance omnichannel experiences for business customers and improve marketing performance. The partnership will help Qualcomm take its own digital transformation to the next level and deliver new ways to showcase the transformative technologies it is delivering to the world.”

ADBE’s trailing-12-month gross profit and EBITDA margins of 87.66% and 37.34% are 74.7% and 278.5% higher than the industry averages of 50.17% and 9.87%, respectively.

For the first quarter ended March 3, 2023, ADBE’s total revenue increased 9.2% year-over-year to $4.66 billion. Its operating income increased 9% year-over-year to $1.59 billion. Additionally, its EPS came in at $2.71, which increased marginally year-over-year.

Street expects ADBE’s revenue to increase 9.6% year-over-year to $19.29 billion in 2023. Its EPS is estimated to increase 13% year-over-year to $15.49 in 2023. It surpassed EPS estimates in all four trailing quarters. The stock has gained 19.6% over the past six months to close the last trading session at $358.14.

It is no surprise that ADBE has an overall rating of B, which translates to a Buy in our POWR Ratings system.

It is ranked #16 in the same industry. It has an A grade for Quality and a B for Sentiment. Click here to get the additional ADBE ratings for Value, Growth, Momentum, and Stability.

Synopsys, Inc. (SNPS)

SNPS provides electronic design automation software products for designing and testing integrated circuits. The company offers the Fusion Design Platform, Verification Continuum Platform, and FPGA design products programmed to perform specific functions. The stock trades at an average volume of 1.13 million.

SNPS’ trailing-12-month gross profit and EBITDA margins of 80.30% and 24.43% are 60.1% and 362.3% higher than the industry averages of 50.17% and 9.87%, respectively.

SNPS’ total revenue increased 7.2% year-over-year to $1.36 billion for the first quarter (ended January 31, 2023). Its non-GAAP net income increased 7.9% year-over-year to $406.70 million. The company’s non-GAAP EPS increased 9.2% year-over-year to $2.62.

SNPS’ revenue is expected to increase 14.1% year-over-year to $5.80 billion in 2023. Its EPS is expected to grow 18.9% year-over-year to $10.58 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 25.8% to close the last trading session at $372.53.

SNPS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #20 stocks in the Software – Application industry.

Beyond what is stated above, we’ve also rated SNPS for Value, Growth, and Momentum. Get all SNPS ratings here.

Autodesk, Inc. (ADSK)

ADSK provides 3D design, engineering, and entertainment software and services worldwide. The company offers AutoCAD Civil 3D, BIM 360, AutoCAD, and AutoCAD LT, among other software and tools.

ADSK’s trailing-12-month gross profit and EBITDA margins of 91.57% and 21.86% are 82.5% and 121.6% higher than the industry averages of 50.17% and 9.87%, respectively.

In the fourth quarter ended October 31, 2022, ADSK’s total net revenue increased 8.8% year-over-year to $1.32 billion. The company’s gross profit increased 8.6% year-over-year to $1.19 billion. Its non-GAAP income from operations increased 13.8% from the year-ago value to $479.00 million.

Moreover, its non-GAAP EPS came in at $1.86, representing a 24% increase from the prior-year quarter.

ADSK’s revenue and EPS for the quarter ending July 2023 are expected to increase 7.7% and 7.3% year-over-year to $1.33 billion and $1.77, respectively. It surpassed the EPS estimates in three of the trailing four quarters. ADSK’s shares have gained 18.7% over the past nine months to close the last trading session at $199.11.

ADSK’s POWR Ratings reflect this positive outlook. ADSK has an overall rating of B, translating to Buy in our proprietary rating system. It is ranked #10 in the same industry. It has an A grade for Quality and a B for Growth.

We have also given ADSK grades for Value, Momentum, Sentiment, and Stability. Get all ADSK ratings here.

Consider This Before Placing Your Next Trade…

We are still in the midst of a bear market.

Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.

That is why you need to discover the “REVISED: 2023 Stock Market Outlook” that was just created by 40 year investment veteran Steve Reitmeister. There he explains:

•         5 Warnings Signs the Bear Returns Starting Now!
•         Banking Crisis Concerns Another Nail in the Coffin
•         How Low Will Stocks Go?
•         7 Timely Trades to Profit on the Way Down
•         Plan to Bottom Fish For Next Bull Market
•         2 Trades with 100%+ Upside Potential as New Bull Emerges
•         And Much More!

You owe it to yourself to watch this timely presentation before placing your next trade.

REVISED: 2023 Stock Market Outlook > 

ORCL shares were trading at $86.62 per share on Monday morning, up $1.36 (+1.60%). Year-to-date, ORCL has gained 6.37%, versus a 2.63% 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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