Software companies have not been performing well recently. One reason for this is that many investors assume that artificial intelligence (AI) will replace their products and services, causing problems for their companies. However, many software stocks are not being replaced by AI, but are actively adapting to the technology. Some will do so successfully and recover from their recent declines. It would be wise to invest in leading software stocks that can recover before a recovery occurs. Let’s consider three options: Microsoft (NASDAQ:MSFT), Shopify (NASDAQ: SHOP) and Veeva systems (NYSE:VEEV).
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1.Microsoft
Microsoft is undoubtedly one of the most successful software companies of all time. Although it has been around for decades, it has survived – and been strengthened by – several technological revolutions. For example, the company had the foresight to launch a cloud computing business, which is now one of its biggest growth drivers. Microsoft could do the same with AI by integrating the technology into its famous productivity suite. The company recently launched Microsoft Scout, a personalized, autonomous AI agent that integrates into its apps and performs many tasks in the background to increase productivity.
Will Microsoft Scout be successful? Maybe not, but even if not, the company will regroup and try again. One of Microsoft’s advantages is its close, long-standing corporate relationships. Trusted by millions of companies around the world. That gives it a head start on rolling out AI agents, getting real-world feedback on how companies use them, and making adjustments as needed.
In addition, Microsoft’s core business is doing well. The company’s revenue and earnings are growing well, and the company remains well-positioned to keep up with the growth of the cloud computing industry for a very long time, thanks in part to its AI-related work. In addition, the stock also offers a strong dividend program. For all of these reasons, Microsoft is a top pick on the downtrend.
2. Shopify
Shopify, a leading e-commerce company, has also launched a number of AI tools. They help merchants on the company platform to build online stores faster, write product descriptions, create logos and much more. These initiatives can help companies launch and scale their businesses faster and better connect with their customers, thereby increasing Shopify’s gross merchandise volume and revenue.
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The e-commerce leader appears to be adapting well to the new AI world order, but many investors remain skeptical of its prospects. To be fair, there are reasons for this that go beyond AI’s potential impact on business. Shopify’s financial results may be strong, but the company’s valuation leaves little room for error. Shopify trades at 65 times forward earnings, compared to an average of 21.4 times for information technology stocks.
At these levels, the stock could fall at any sign of trouble, and that’s what happened as Shopify reported its first-quarter results and issued guidance that implied a slowdown in sales growth. Despite these reservations, the stock appears to be attractive for long-term investors. Shopify is a leader in its niche of the e-commerce market; It operates 30% of online businesses in the US and has a competitive advantage thanks to high switching costs.
Additionally, given the industry’s long growth outlook, Shopify is well-positioned to capitalize on these tailwinds and improve its financial results over the long term. Given its growth prospects, Shopify is worth a premium (it has historically traded at high valuation multiples). Patient investors who buy the company’s shares when prices decline can achieve excellent returns in the long run.
3. Veeva Systems
Veeva Systems is a cloud computing company specializing in manufacturing products for the life sciences industry. Generic cloud solutions will not work for these companies given the unique needs of the industry, including the stringent regulatory requirements they face when bringing their products to market. Veeva Systems has designed its cloud products with these needs in mind, which is why the company is popular with leading pharmaceutical and biotech companies.
Veeva Systems has also started integrating AI into its solutions. It introduced Veeva AI, a layer of AI agents embedded in Veeva’s applications to automate work.
This initiative could help boost the company’s business and allow it to capitalize on the major opportunities that remain in its niche, the cloud industry. Veeva Systems estimates the total addressable market across the company at $20 billion – in the last 12 months, the company generated just $3.3 billion.
Veeva Systems’ addressable market is expected to grow along with the healthcare sector. In addition, the company benefits from a competitive advantage caused by high switching costs. For companies that rely on cloud solutions for critical everyday tasks, the transition is not easy. In short, Veeva Systems’ business could survive and even thrive thanks to AI while performing well in the medium term. That’s why the stock is attractive, especially after its significant decline.
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Prosper Junior Bakiny has positions at Shopify. The Motley Fool has positions in and recommends Microsoft, Shopify, and Veeva Systems. The Motley Fool has one Disclosure Policy.
“My Top 3 Software Stocks to Buy on the Dip” was originally published by The Motley Fool
https://finance.yahoo.com/markets/stocks/articles/top-3-software-stocks-buy-050500630.html
