The software industry is growing, propelled by the thriving e-commerce sector, advancements in artificial intelligence (AI), and the widespread proliferation of interconnected devices. Therefore, investors could consider top-rated software stocks Cadence Design Systems, Inc. (CDNS), Manhattan Associates, Inc. (MANH), and Intuit Inc. (INTU) for potential gains this month.
The global software market is experiencing significant growth, driven by the shift to remote work, government support for technology, and the need for cybersecurity.
Gartner's predictions point to a strong growth trajectory in global software spending. It is estimated to rise by 13.7% year-over-year, reaching $922.75 billion this year. Turning our gaze to 2024, the projection indicates an even more robust expansion, with global software spending expected to climb to $1.05 trillion, representing a 14.1% year-on-year increase.
Additionally, the global software market is expected to grow at a CAGR of 11.5% until 2030.
Moreover, in an effort to enhance adaptability, organizations are increasingly embracing digitization and automation. The global adoption of Software as a Service (SaaS) solutions across various business functions is fuelling the continuous and steady growth of the overall SaaS market.
The global SaaS market is expected to reach $720.44 billion by 2028, growing at a CAGR of 25.9%.
Furthermore, as technology advances globally, businesses across various sectors are increasingly integrating artificial intelligence software to boost performance and gain deeper insights into their operations.
The growing demand for enhanced business IoT solutions, autonomous vehicles, and robotics is also expected to be a significant driver of growth in the artificial intelligence software market.
The AI software market is expected to reach approximately $1.09 trillion by 2032, expanding at a CAGR of 23%.
Considering these conducive trends, let’s take a look at the fundamentals of the three best Software – Application stocks, starting with number 3.
Stock #3: Cadence Design Systems, Inc. (CDNS)
CDNS offers software, hardware, services, and reusable integrated circuit (IC) design blocks worldwide. The company renders functional verification services, including emulation and prototyping hardware.
On October 3, CDNS and CEVA, Inc. (CEVA) announced that CDNS had completed its acquisition of Intrinsix Corporation from CEVA. The purchase brings CDNS a highly skilled engineering team with expertise in advanced nodes, radio frequency, mixed-signal, and security algorithms, scaling CDNS’s system and IC design services team and expanding CDNS’ reach in key high-growth verticals, including aerospace and defense.
On September 27, CDNS unveiled new system prototyping flows based on the Cadence Integrity 3D-IC Platform, supporting the 3Dblox 2.0 standard.
During the fiscal second quarter ending June 30, 2023, CDNS’ total revenue increased 13.9% year-over-year to $976.58 million. Its income from operations rose 5.8% from its year-ago quarter to $299.33 million. The company’s EPS grew 19.1% year-over-year to $0.81.
Analysts expect CDNS’ revenue to increase 11.3% year-over-year to $1 billion for the fiscal third quarter that ended September 2023. Its EPS is likely to rise 14.5% from the previous-year quarter to $1.21 in the same quarter. Moreover, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.
The stock has gained 42.4% year-to-date to close the last trading session at $228.69.
CDNS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has an A grade for Quality and a B for Sentiment. Within the 133-stock Software – Application industry, it is ranked #35.
Beyond what we’ve stated above, we have also given CDNS grades for Growth, Value, Momentum, and Stability. Get all the CDNS ratings here.
Stock #2: Manhattan Associates, Inc. (MANH)
MANH develops, sells, deploys, services, and maintains software solutions to manage supply chains, inventory, and omni-channel operations.
On September 18, MANH announced that Duluth Trading Company, a renowned casualwear, workwear, and accessory retailer for men and women, had successfully implemented Manhattan Active Warehouse Management at its new distribution and fulfillment facility in Adairsville, Georgia.
On September 5, MANH announced enhanced Returns Management capabilities to streamline and optimize the returns process and deliver a frictionless experience for both consumers and retailers. The new returns features strengthen customer loyalty by creating a frictionless experience, promoting an increase in store traffic and cross-selling opportunities.
MANH’s total revenue increased 20.4% year-over-year to $231.02 million in the fiscal second quarter that ended June 30, 2023. Its adjusted net income increased 24.8% year-over-year to $54.64 million. The company’s adjusted EPS increased 27.5% year-over-year to $0.88.
MANH’s revenue is expected to increase 14.2% year-over-year to $226.27 million in the fiscal third quarter that ended September 2023. Its EPS for the same quarter is expected to increase 15.8% year-over-year to $0.76. Also, it has surpassed EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Shares of MANH soared 60.7% year-to-date to close the last trading session at $195.13.
MANH’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B in Sentiment. It is ranked #34 in the same industry.
To access MANH’s additional ratings for Growth, Value, Stability, and Momentum, click here.
Stock #: Intuit Inc. (INTU)
INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in Small Business and Self-Employed; Consumer; Credit Karma; and ProTax segments.
On October 3, INTU and Wix.com Ltd. (WIX), a leading global SaaS platform to create, manage, and grow an online presence, announced a multi-year bi-lateral strategic partnership.
Through the upcoming collaboration between the platforms, users will benefit from stronger functionality and ease of use of marketing activities by connecting CRM data between the platforms, bolstering their marketing capabilities to drive customer engagement and increase sales growth.
On September 27, INTU announced the launch of two additional QuickBooks Payroll plans in Canada. The new offering is designed to help small-to-medium sized businesses with employees streamline their payroll, making it easy to manage cash flow and boost their efficiency.
INTU pays an annual dividend of $3.60, that translates to a yield of 0.70% on the current market price. The company has raised its dividend payouts at a CAGR of 13.8% over the past three years.
INTU’s net revenue increased 12% year-over-year to $2.71 billion in the fourth quarter that ended July 31, 2023. Its non-GAAP operating income grew 45% from the prior-year quarter to $627 million. Also, the company’s non-GAAP net income per share was $1.65, an increase of 50% year-over-year.
INTU’s revenue is expected to increase 10.9% year-over-year to $2.88 billion in its fiscal first quarter ending October 2023. Its EPS is expected to increase 19.2% year-over-year to $1.98 in the current quarter. The company has exceeded EPS estimates in each of the trailing four quarters, which is impressive.
The stock soared 30.4% year-to-date to close the last trading session at $507.48.
It is no surprise that INTU has an overall B rating, which equates to a Buy in our POWR Ratings system.
Also, the stock has a B grade for Quality and Growth. INTU is ranked #27 in the same industry.
Click here to see INTU’s additional POWR Ratings (Sentiment, Value, Stability, and Momentum).
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.
INTU shares were unchanged in premarket trading Wednesday. Year-to-date, INTU has gained 31.11%, versus a 11.91% 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.
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