The software market is booming due to increased data volume, business automation, digitization, and heightened cybersecurity concerns, further accelerated by the pandemic’s impact on remote work. Therefore, investors could consider buying fundamentally sound software stocks F5, Inc. (FFIV), Amdocs Limited (DOX), and Informatica Inc. (INFA) for a secure future.
The United States has witnessed a significant surge in software demand lately, propelled by factors like the widespread adoption of cloud computing and other emerging technologies, the proliferation of mobile devices, and the escalating significance of data analytics.
This year, software development trends are anticipated to embrace increased artificial intelligence (AI) integration across various products, alongside a potential surge in VR adoption driven by next-gen headset releases from major players. According to Gartner, worldwide software spending is expected to grow by 12.7% year-over-year to $1.03 trillion in 2024.
Besides, the U.S. software market is growing steadily due to increasing digital transformation efforts and rising demand for advanced cybersecurity solutions in response to escalating cyber threats, which are reshaping business operations and driving innovation within the industry. The U.S. software market is estimated to grow at a CAGR of 7.2% from 2024 to 2030.
Moreover, the SaaS market is expanding due to the increased adoption of public cloud services. Demand for smart devices and CRM SaaS solutions is also rising, fueled further by the COVID-19 pandemic's impact on cloud software adoption. The global SaaS market size is projected to grow at a CAGR of 18.7% to reach $908.21 billion by 2030.
The AI software market is also expanding due to advancements in deep learning and machine learning and widespread adoption across industries. The increasing volume of data, demand for automation, and accessibility of AI via cloud computing platforms also fuel this growth. The global AI software market is projected to grow at a CAGR of 37.2% to reach $1.35 trillion by 2030.
Considering these encouraging market trends, let’s discuss the fundamentals of three software stock picks: FFIV, DOX, and INFA.
F5, Inc. (FFIV)
FFIV delivers multi-cloud application security and delivery solutions globally, facilitating the deployment and protection of applications across diverse environments. Its offerings include unified security and networking solutions, serving a wide range of clients through a global network of partners.
On March 5, 2024, FFIV integrated Heyhack’s automated reconnaissance and penetration testing capabilities into its Distributed Cloud Services, streamlining vulnerability discovery for multi-cloud environments. These enhancements automate scanning and recommend web application firewall rules, furthering its goal of simplifying application security for customers.
On February 7, FFIV launched new capabilities to streamline application and API security in the AI era, addressing the complexities of modern digital environments. With integrated AI-driven solutions in F5 Distributed Cloud Services, customers will benefit from comprehensive protection and enhanced governance across their application lifecycle.
FFIV reported total net revenues of $692.60 million in the first quarter of fiscal year 2024, which ended December 31, 2023. The company’s total operating expenses decreased 13.8% year-over-year to $391.69 million. Moreover, its non-GAAP net income and net income per share rose 37.1% and 38.9% from the prior-year quarter to $204.73 million and $3.43, respectively.
For the second quarter of fiscal year 2024, the company anticipates revenue between $675 million and $695 million, alongside non-GAAP earnings projected to be between $2.79 and $2.91 per share.
Analysts expect FFIV’s revenue and EPS for the fiscal year (ending September 2025) to increase 4.3% and 10.1% year-over-year to $2.91 billion and $13.87, respectively. Moreover, the company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is promising.
The stock has gained 29.3% over the past nine months to close the last trading session at $187.46.
FFIV’s POWR Ratings reflect this strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
The stock has an A grade for Quality and a B for Value. In the Software - Business industry, FFIV is ranked #2 among 44 stocks.
To access additional ratings for FFIV’s Growth, Momentum, Stability, and Sentiment, click here.
Amdocs Limited (DOX)
DOX offers global software and service solutions, mainly focusing on cloud-based offerings for the communications, entertainment, and media sectors. Its portfolio includes CES23, a customer experience suite for 5G and cloud-native services, alongside modular solutions for billing, revenue management, and network automation.
On February 26, 2024, DOX expanded its partnership with Microsoft Corporation (MSFT) to introduce verticalized GenAI capabilities for the telecommunications industry, leveraging DOX’s amAIz platform and MSFT’s Azure OpenAI Service.
The collaboration includes establishing a dedicated lab and center of excellence to drive innovation and accelerate the adoption of GenAI technologies among communications service providers globally.
On February 6, DOX declared its next quarterly cash dividend payment, which the company increased to $0.479 per share, payable on April 26, 2024. The company pays $1.92 annually, which translates to a yield of 2.11% on the prevailing price level, higher than its four-year average dividend yield of 1.86%.
The company’s dividend payouts have grown at a CAGR of 9.9% and 11.7% over the past three and five years, respectively. Moreover, the company has raised its dividends for seven consecutive years.
In the first quarter of fiscal year 2024, which ended December 31, 2023, DOX’s revenue increased 5% year-over-year to $1.25 billion. The company’s non-GAAP operating and net income grew 7.5% and 4.1% from the previous year’s quarter to $225.24 million and $183.83 million, respectively. Also, its non-GAAP EPS rose 7.1% from the year-ago value to $1.56.
For the second quarter of fiscal 2024, the company anticipates revenue in the range of $1.23 billion to $1.27 billion, with its non-GAAP EPS expected to range from $1.53 to $1.59.
Street expects DOX’s revenue and EPS to grow 5% and 9.8% year-over-year to $5.30 billion and $7.14 for the fiscal year ending September 2025, respectively. In addition, the company has topped consensus revenue estimates in each of the trailing four quarters.
DOX’s stock has surged 7.7% over the past three months to close the last trading session at $90.77.
DOX’s POWR Ratings reflect its robust prospects. The stock has an overall A rating, translating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Stability, and Quality. Within the Software - Business industry, DOX is ranked #7.
Click here to see DOX’s ratings for Growth, Momentum, and Sentiment.
Informatica Inc. (INFA)
INFA offers AI-powered data management solutions for enterprise-scale operations, including data integration, API management, and governance products. Its platform unifies data across multi-cloud and hybrid systems, facilitating seamless connectivity and management.
On March 5, 2024, INFA announced that its AI-powered data management cloud platform aids Pharmarack, the largest B2B healthcare network in India, in standardizing catalog quality and enhancing efficiency across India's pharmaceutical value chain.
This solution ensures consistent, high-quality master data, addresses challenges related to spurious medicines, and ensures the availability of quality medicines nationwide.
On February 29, INFA introduced Cloud Data Access Management (CDAM), revolutionizing data access governance with automated sensitive data classifications and intuitive policy authoring, enhancing compliance and trust. Integrated with IDMC, CDAM accelerates data access for analytics, reduces compliance costs, and simplifies controls across complex data operations.
During the fourth quarter, which ended December 31, 2023, INFA’s total revenues rose 11.6% year-over-year to $445.18 million. The company's non-GAAP net income and net income per share grew 41.8% and 33.3% from the prior-year quarter to $97.30 million and $0.32, respectively. Also, its adjusted EBITDA increased 40.6% year-over-year to $166.42 million.
For the fiscal year ending December 31, 2024, the company projects its total revenues to be between $1.69 billion and $1.71 billion. Its non-GAAP operating income is estimated to range from $533 million to $553 million. Moreover, its adjusted unlevered FCF is projected to range from $535 million to $555 million.
Analysts expect INFA’s revenue and EPS for the fiscal year (ending December 2025) to grow 7.2% and 11% year-over-year to $1.82 billion and $1.20, respectively. Furthermore, the company surpassed the revenue estimates in each of the trailing four quarters.
INFA’s shares have surged 86.5% over the past nine months and 79.4% over the past year to close the last trading session at $31.70.
INFA’s sound fundaments are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment and Quality. Among the 19 stocks in the B-rated Software - SAAS industry, INFA is ranked #3.
In addition to the POWR Ratings stated above, access INFA’s Value, Momentum, and Stability ratings here.
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.
FFIV shares were unchanged in premarket trading Wednesday. Year-to-date, FFIV has gained 4.74%, versus a 7.27% 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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