Software Continues to “Eat the World”
While it may go under the radar at times, the modern economy is heavily reliant on software for several reasons.
1. Software plays an integral role in how companies manage and process information. Because today’s economic landscape is so competitive, it is necessary for Fortune 500 companies to collect as much data as possible so that they can make the most optimal decisions and thrive.
2. Software has transformed the way we communicate, shop, work, and consume information.
3. Finally, software has enabled the automation and digitization of countless industries, leading to increased efficiency and productivity.
Overall, software has become a critical component of modern business operations, and its importance will likely continue to grow as the technology advances. The software revolution, which is synonymous with the 2000s has benefitted not only the companies that use it, but also the software companies themselves and their underlying stocks. Software’s impact can be illustrated by the iShares Software ETF’s (IGV) performance.Even after software was crushed last year, IGV is up 319% over the past decade – far outpacing the S&P 500’s return 160% over the same period.
Image Source: Zacks Investment Research
Below we show some key segments of the software industry and divulge some stocks that are setting up from a technical standpoint:
Enterprise Software: This segment of the software industry serves an organization’s needs, rather than those of an individual. Two stocks are setting up in this group. Zacks Rank #2 (Buy) stock New Relic (NEWR) helps engineering teams to organize themselves and make better decisions based on data. Not only is NEWR’s software helpful, it also caters to a growing space. After reporting blockbuster earnings in February, New Relic’s management team highlighted that the number of professional computer engineers is expected to rise from 25 million to 34 million by 2025.
Image Source: Zacks Investment Research
Marketing/Sales Software: HubSpot (HUBS) is a software platform that helps companies automate sales and marketing needs, such as social media posts and search engine optimization (SEO). After reporting healthy bottom line growth of 91% last quarter, shares are consolidating tightly and pulling into the 50-day moving average – an attractive area (from a risk/reward perspective) for investors to jump aboard.
Image Source: Zacks Investment Research
Cyber Security Software: Some of the most robust and resilient stocks over the past year have come from the cyber security software space. Simply put, regardless of economic conditions, protecting against cyber security threats is a non-negotiable for any serious company. Furthermore, the number of cyber security threats continues growing exponentially. The leaders in this group are undoubtedly Palo Alto Networks (PANW) and Fortinet (FTNT). In the most recent quarter, both industry juggernauts posted healthy double-digit top and bottom-line growth numbers – leading to strong upside price gaps. Since then, they have digested gains and are in the midst of break outs – offering investors a second chance to hop aboard.
Image Source: Zacks Investment Research
Bottom Line
After a rough 2022, software stocks have come back with a vengeance in 2023. Currently, many fundamentally sound companies are setting up in constructive technical patterns from all software segments. In a follow-up article, we will uncover other segments of software, such as entertainment, customer relationship software, and HR-related software. These segments are strong in their own right and include industry leaders such as Spotify (SPOT), Salesforce (CRM), and Microsoft (MSFT). All else equal, we expect software to be a leader into the end of the year.
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Microsoft Corporation (MSFT) : Free Stock Analysis Report
Salesforce Inc. (CRM) : Free Stock Analysis Report
Fortinet, Inc. (FTNT) : Free Stock Analysis Report
Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report
HubSpot, Inc. (HUBS) : Free Stock Analysis Report
New Relic, Inc. (NEWR) : Free Stock Analysis Report
iShares Expanded Tech-Software Sector ETF (IGV): ETF Research Reports
Spotify Technology (SPOT) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
