In this article, we will be taking a look at the 14 best software stocks to buy according to hedge funds. To skip our detailed analysis of the tech sector, you can go directly to see the 5 Best Software Stocks To Buy According To Hedge Funds.
AI is Revolutionizing the Software Industry
News in the technology industry has long been dominated by talks of artificial intelligence and semiconductors. Considering this, it's unsurprising that application software and software infrastructure companies are also beginning to be pulled into the craze surrounding AI and semiconductors, so much so that enterprise software companies may very well become revolutionized by artificial intelligence and drive up demand for semiconductor companies and their technology. With the growing use of artificial intelligence by software companies, not only can these companies expect to see greater innovation in their work processes, leading to perhaps higher profitability for themselves in the long run, but also, users of their software products can expect to benefit from the integration of artificial intelligence in software tools and products, making these much more accessible to every other user.
On February 21, NVIDIA Corporation's (NASDAQ:NVDA) CEO, Jensen Huang, joined CNBC's "Last Call" to discuss this possibility. Here are some of his comments from the call:
"What's gonna happen is this: the world's enterprise software platforms represent approximately a trillion dollars. These trillion dollars represent most platforms, like ServiceNow, it represents data platforms like Snowflake, Dropbox, Box, SAP, Oracle. These application oriented, tools oriented platforms and data oriented platforms are all going to be revolutionized with these AI agents that sit on top of it. And the way to think about that is very simple. Whereas these platforms used to be tools that experts would learn to use, in the future, these tools companies will also offer AI agents that you can hire to help you use these tools, or to help you reduce the barrier of using these tools."
The AI Craze: Hype or Reality?
Gene Munster, the Managing Partner at Deepwater Asset Management, also joined CNBC's "Last Call" on February 21 to discuss the application of AI in enterprise software. Here are some of his comments:
"There is already an infrastructural layer that's in place, it's still nascent, but there is a lot of use for some of the things that Jensen Huang was just talking about... they are actually using AI. And that is in incredible numbers. I said I expected it to be 5%, but 40% does show that even though this is early, we're getting a lot of use from AI. I guess this really speaks to the question of AI, how much is it hype, how much is it reality? This looks to be more than just a guess from the big tech companies, that it's gonna be something that people are actually using."
Considering the above, investors are beginning to gravitate not just towards pure artificial intelligence plays in the market, but also software companies that may be making use of AI to enhance their products and services. As such, we have compiled a list of some of the best software stocks to buy now, such as Microsoft Corporation (NASDAQ:MSFT), salesforce.com, inc. (NYSE:CRM), and Uber Technologies, Inc. (NYSE:UBER). Our list includes some of the best software stocks to invest in for the long term, alongside some of the best AI software stocks as well.
14 Best Software Stocks To Buy According To Hedge Funds
An engineer wearing virtual reality goggles programming the company's video cloud and software.
Our Methodology
To compile our list of the best software stocks to buy according to hedge funds, we consulted Insider Monkey's hedge fund data for the fourth quarter. The stocks were shortlisted and ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Best Software Stocks To Buy According To Hedge Funds
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a systems software company. It provides cloud-delivered protection across endpoints and cloud workloads, identity, and data.
Guggenheim analyst John Difucci maintained a Buy rating and a $358 price target on CrowdStrike Holdings, Inc. (NASDAQ:CRWD) this February.
There were 62 hedge funds long CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in the fourth quarter, with a total stake value of $2.6 billion.
Baron Funds mentioned CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its fourth-quarter 2023 investor letter:
“Improving unit economics: Many of our companies were able to significantly expand margins during 2023 even though revenue growth decelerated for some of them, showcasing the power of their capital-light, recurring revenue business models, and their increased focus on efficiency. Another example is the cybersecurity platform, CrowdStrike Holdings, Inc. (NASDAQ:CRWD), which is expected to increase its operating margins from 15.9% in 2022 to 20.8% in 2023 as a result of growing efficiencies, while the company’s platform offering is resonating with an increasing number of customers (for example, deals with eight or more modules grew 78% year-over-year in the last quarter), which is a tailwind to sales productivity.”
In the fourth quarter, 66 hedge funds were long Synopsys, Inc. (NASDAQ:SNPS) with a total stake value of $3.2 billion.
Synopsys, Inc. (NASDAQ:SNPS) is an application software company. It provides electronic design automation software products used to design and test integrated circuits.
Joe Vruwink at Baird maintained an Outperform rating and a $640 price target on Synopsys, Inc. (NASDAQ:SNPS) this February.
“Synopsys, Inc. (NASDAQ:SNPS) provides software for the development of semiconductors. Investors have appreciated the continued strength in demand from major semiconductor companies and the company’s new product announcements leveraging artificial intelligence.”
Based in San Francisco, California, Splunk Inc. (NASDAQ:SPLK) is an application software company. The company develops and markets cloud services and licensed software solutions in the US and internationally.
Splunk Inc. (NASDAQ:SPLK) was seen in the portfolios of 68 hedge funds in the fourth quarter, with a total stake value of $3.9 billion.
“Stock selection in the IT sector was the main detractor during the quarter, as the prospect of a higher-for-longer rate environment weighed on longer-duration, higher growth stocks. Despite these challenges, there were also strong positive contributions from Splunk Inc. (NASDAQ:SPLK) and AppLovin. Splunk’s price rallied on the news of its acquisition by Cisco, and investors applauded AppLovin’s new, AI-enabled platform which is improving productivity in its mobile games ad network.”
Like Microsoft Corporation (NASDAQ:MSFT), salesforce.com, inc. (NYSE:CRM), and Uber Technologies, Inc. (NYSE:UBER), Splunk Inc. (NASDAQ:SPLK) is one of the best software stocks to buy now.
Datadog, Inc. (NASDAQ:DDOG) is another application software company on our list of the best software stocks to buy. It operates an observability and security platform for cloud applications in North America and internationally.
RBC Capital's Matthew Hedberg reiterated an Outperform rating on Datadog, Inc. (NASDAQ:DDOG) on February 16, alongside a $151 price target.
There were 72 hedge funds long Datadog, Inc. (NASDAQ:DDOG) in the fourth quarter, with a total stake value of $2.4 billion.
We saw 72 hedge funds long Cadence Design Systems, Inc. (NASDAQ:CDNS) in the fourth quarter, with a total stake value of $3.6 billion.
Cadence Design Systems, Inc. (NASDAQ:CDNS) is a provider of software, hardware, and reusable integrated circuit design blocks worldwide. It is based in San Jose, California.
On February 14, Morgan Stanley's Lee Simpson placed an Overweight rating on Cadence Design Systems, Inc. (NASDAQ:CDNS) alongside a $350 price target.
Michael Turrin at Wells Fargo holds an Overweight rating and a $710 price target on Intuit Inc. (NASDAQ:INTU) as of February 21.
Intuit Inc. (NASDAQ:INTU) is a provider of financial management and compliance products and services operating in the application software industry. It is based in Mountain View, California.
In total, 75 hedge funds were long Intuit Inc. (NASDAQ:INTU) in the fourth quarter. Their total stake value was $6.9 billion.
Fisher Asset Management was the most prominent shareholder in Intuit Inc. (NASDAQ:INTU) at the end of the fourth quarter, holding 3.1 million shares in the company.
Holding 3.1 million shares in the company, Citadel Investment Group was the largest shareholder in Palo Alto Networks, Inc. (NYSE:PANW) at the end of the fourth quarter.
Palo Alto Networks, Inc. (NYSE:PANW) is a systems software company based in Santa Clara, California. It provides cybersecurity solutions such as firewall appliances and software.
Keybanc's Michael Turits holds an Overweight rating and a $380 price target on Palo Alto Networks, Inc. (NYSE:PANW) as of February 21.
Palo Alto Networks, Inc. (NYSE:PANW) had 77 hedge funds long its stock in the fourth quarter. Their total stake value was $1.8 billion.
“Across the Information Technology universe, we seek companies possessing differentiated capabilities, products, and services. Palo Alto Networks, Inc. (NASDAQ:PANW) supplies network and cloud-based security solutions to enterprises, service providers, and government entities. The latest quarter was mixed with the company falling shy versus the Street on billings, in line for revenues, and outpacing earnings. Palo Alto’s updated guidance was materially ahead of lowered Street expectations. Nevertheless, its shares pulled back by -8%.”
Our hedge fund data for the fourth quarter shows 81 hedge funds long Workday, Inc. (NYSE:WDAY), with a total stake value of $5.4 billion.
Workday, Inc. (NYSE:WDAY) is an application software company that provides enterprise cloud applications. It is based in Pleasanton, California.
Wells Fargo's Michael Turrin maintained an Overweight rating and a $350 price target on Workday, Inc. (NYSE:WDAY) on February 20.
Like Microsoft Corporation (NASDAQ:MSFT), salesforce.com, inc. (NYSE:CRM), and Uber Technologies, Inc. (NYSE:UBER), Workday, Inc. (NYSE:WDAY) is among the best software stocks to buy now.
Altimeter Capital Management was the most prominent shareholder in Snowflake Inc. (NYSE:SNOW) at the end of the fourth quarter, holding 12.4 million shares in the company.
On February 21, Needham's Mike Cikos maintained a Buy rating and a $265 price target on Snowflake Inc. (NYSE:SNOW).
Snowflake Inc. (NYSE:SNOW) is an internet services and software infrastructure company based in Bozeman, Montana. The company provides a cloud-based data platform.
A total of 86 hedge funds were long Snowflake Inc. (NYSE:SNOW) in the fourth quarter. Their total stake value was $7 billion.
Altimeter Capital Management was the most prominent shareholder in Snowflake Inc. (NYSE:SNOW) at the end of the fourth quarter, holding 12.4 million shares in the company.
