Despite prevailing macroeconomic uncertainties, the software sector remains poised for a bright future, buoyed by increased expenditure and surging demand for digital transformation. Furthermore, the industry's agility and capacity to innovate in response to evolving consumer needs position it favorably for sustained growth.

In light of these favorable conditions, investors could consider buying shares of top-notch software companies with strong fundamentals, such as Adobe Inc. (ADBE), SS&C Technologies Holdings, Inc. (SSNC), and Commvault Systems, Inc. (CVLT).

The software industry emerged from the Fed’s interest rate hikes and liquidity crunch-induced slump due to the recent widespread interest in generative Artificial Intelligence (AI). This has led to an inflow of capital into the software industry. Moreover, according to Gartner, global software spending is anticipated to register a 14.1% growth rate in 2024, reaching $1.05 trillion.

Projections indicate that the U.S. software market alone is on track to achieve $338.20 billion in revenue by 2023. Revenue is estimated to expand at a CAGR of 4.2% through 2028, resulting in a market volume of $414.70 billion.

Additionally, the rapid pace of worldwide digital transformation is propelling the growth of the application development software market, with expectations of a CAGR of 20.6%, reaching $943.80 billion by 2028.

In light of these encouraging trends, let’s look at the fundamentals of the three Software – Application stocks, beginning with number 3.

Stock #3: Adobe Inc. (ADBE)

ADBE provides professionals, communicators, businesses, and consumers with a range of products and services to create, manage, deliver, measure, optimize, engage, and transact with content and experiences across diverse digital media formats. Its segments include Digital Media; Digital Experience; and Publishing and Advertising.

On September 13, ADBE announced Adobe GenStudio, a solution that utilizes generative AI to streamline the enterprise content supply chain, allowing for rapid content creation, activation, and performance analysis across various channels.

This development could enhance ADBE's position in the market by offering a more efficient and automated content creation process, reducing the time and effort required for content production and activation.

On the same day, ADBE announced the commercial availability of Text to Image and Text Effects Firefly generative AI features in Adobe Express, an AI-driven creativity app. This move is expected to enhance ADBE's offerings, making it easier for users of all skill levels to create high-quality content and attract more subscribers to ADBE's Creative Cloud plans with access to Express Premium features.

For the fiscal third quarter that ended September 1, 2023, ADBE’s total revenue increased 10.3% year-over-year to $4.89 billion. Its gross profit grew 10.9% from the year-ago value to $4.31 billion. Also, its non-GAAP operating income rose 15.8% from the prior year’s quarter to $2.26 billion.

In addition, the company’s non-GAAP net income and non-GAAP net income per share came in at $1.88 billion and $4.09, representing an increase of 17.7% and 20.3%, respectively, from the prior-year quarter.

The consensus revenue estimate of $5.02 billion for the fourth quarter (ending November 2023) represents a 10.9% increase year-over-year. Likewise, the consensus EPS estimate of $4.14 for the current quarter indicates a 14.9% year-over-year improvement. Also, the company surpassed the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 84.1% over the past year and 59% year-to-date to close the last trading session at $535.78.

ADBE’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ADBE has an A grade for Quality and a B for Sentiment. Out of the 133 stocks in the Software - Application industry, it is ranked #20.

To see the other ratings of ADBE for Growth, Momentum, Value, and Stability, click here.

Stock #2: SS&C Technologies Holdings, Inc. (SSNC)

SSNC offers software products and services to the financial services and healthcare industries, including solutions for securities accounting, portfolio management, healthcare claims adjudication, and more. It helps clients automate complex business processes and manage information processing needs.

On August 20, SSNC announced that it would be acquiring the MFA business from Iress, expanding its position as a transfer agent and enhancing its presence in Australia's financial services sector.

This move aims to provide improved digital servicing and support to asset managers, potentially boosting SSNC's business growth and client base in investment management.

In the same month, SSNC announced enhancements to its Tier 1 CRM platform, with increased data insights and in-app information delivery. The platform has seen significant user growth, including leading international banks, which could contribute to revenue growth and further innovation for SSNC in the capital markets sector.

SSNC’s adjusted revenues increased 2.5% year-over-year to $1.36 billion for the fiscal second quarter ended June 30, 2023. Its gross profit grew 2.7% from the previous year to $641.10 million.

Also, the company’s adjusted operating income came in at $486.40 million, registering an increment of 6.7% from the prior year’s quarter. In addition, adjusted consolidated EBITDA attributable to SSNC common stockholders rose 6.7% year-over-year to $502.40 million.

Street expects the EPS for the fiscal third quarter ending September 2023 to come in at $1.18, indicating a 2.6% increase from the previous year’s period. Moreover, revenue is projected to reach $1.38 billion, registering an increment of 4.3% year-over-year. Additionally, SSNC surpassed the revenue estimates in three of the trailing four quarters.

The stock has gained  4.7% over the past year to close the last trading session at $54.72.

It’s no surprise that SSNC has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has a B grade for Growth, Value, and Stability. Within the same industry, it is ranked #13.

In addition to the POWR Ratings we’ve stated above, we also have SSNC’s ratings for Momentum, Sentiment, and Quality. Get all SSNC ratings here.

Stock #1: Commvault Systems, Inc. (CVLT)

CVLT provides data protection solutions, including backup, disaster recovery, and data protection as a service, serving a diverse range of industries worldwide through direct and indirect sales channels. The company also offers technology consulting, ransomware recovery, and managed services.

On August 22, CVLT launched Platform Release 2023E, offering proactive threat detection, improved integrations with Microsoft Sentinel and Palo Alto XSOAR, and a user-friendly interface.

These updates could strengthen CVLT's data protection solutions and appeal to organizations looking to enhance their backup security in the face of rising ransomware threats, potentially benefiting CVLT's business.

On July 27, CVLT expanded its collaboration with Amazon Web Services (AWS) by joining the AWS Independent Software Vendor (ISV) Workload Migration Program and attaining multiple AWS Service Ready designations.

This partnership aims to provide customers with enhanced data protection solutions for cloud and hybrid environments while simplifying migration to AWS, potentially boosting CVLT's business by increasing its accessibility and credibility in the AWS ecosystem.

CVLT’s total revenue for the fiscal first quarter of 2024, which ended June 30, 2023, marginally increased year-over-year to $198.15 million. Its non-GAAP income from operations increased 7.2% from the year-ago value to $43.53 million.

Moreover, CVLT’s non-GAAP net income and non-GAAP EPS stood at $32.53 million and $0.72, registering increments of 10.3% and 12.5% year-over-year, respectively.

For the fiscal 2024 second quarter ending September 2023, CVLT’s EPS is estimated to be $0.64, increasing 12.7% year-over-year. Furthermore, its revenue is expected to grow 3.8% from the prior year’s quarter to $195.21 million.

CVLT’s shares have gained 22.5% over the past six months and 30.9% over the past year, closing the last trading session at $68.60.

CVLT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.

It has an A grade for Growth and Quality and a B for Value and Sentiment. Among the 133 stocks within the same industry, it is ranked #2.

Click here to see the other ratings of CVLT for Momentum and Stability.

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ADBE shares were trading at $516.77 per share on Thursday afternoon, down $19.01 (-3.55%). Year-to-date, ADBE has gained 53.56%, versus a 14.69% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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