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3 Enterprise Software Stocks to Bet On Amid GenAI-Driven Rally
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Enterprise software stocks such as Adobe (ADBE - Free Report) , Salesforce, Inc. (CRM - Free Report) and Workday (WDAY - Free Report) have made a remarkable comeback year to date (YTD) after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. YTD, Adobe, Salesforce and Workday stocks have rallied 63%, 54.3% and 28.4%, respectively.
The aforementioned stocks have also outperformed the broader equity market. Major U.S. stock market indexes, the Nasdaq Composite, The Dow Jones Industrial Average and the S&P 500, have risen 28.1%, 1.6% and 12.7%, respectively, YTD.
Additionally, Adobe and Salesforce stocks have handily surpassed Technology Select Sector SPDR’s (XLK - Free Report) , the most important component of the broad market index, YTD gain of 36.4%. However, Workday’s YTD increase is lower than XLK’s gain.
What’s Behind This Rally?
With persistent inflationary pressure and softening demand, the fears of recession have not subsided yet. However, enterprise software companies have been focusing on cost-cutting measures to improve profitability and stay afloat amid these turbulent times. The strategies have boosted investors’ confidence, thereby enhancing their share prices.
Additionally, the success of OpenAI’s ChatGPT has demonstrated the AI technology’s potential to improve operations in almost every industry. Though AI has been around for years, the meteoric rise of OpenAI’s ChatGPT has captivated the world’s attention on the power of generative AI to augment human capability, suggesting that the AI boom may just get started.
Generative AI is a type of AI technology that can produce various types of content, including text, imagery, audio and synthetic data. The long-term growth prospect attached to this technology has led to a sharp rise in the share prices of AI-related technology and solutions providing mega-cap companies.
Enterprise Software Stocks to Consider
Considering the probable new demand for enterprise software integrated with generative AI features and a possible improvement in profitability due to cost-cutting initiatives, we believe there is still significant upward potential left in ADBE, CRM and WDAY stocks. Therefore, investors should invest in stocks that are fundamentally strong and can sustain market jitters and ensure solid portfolio returns.
We ran the Zacks Stock Screener to identify the aforementioned enterprise software stocks that have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy).
The Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Additionally, per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 and a Growth Score of A or B offer solid investment opportunities.
The abovementioned enterprise software stocks look promising based on their encouraging growth prospects, Zacks Rank and Growth Score. Let’s discuss the tech stocks in detail:
Adobe has aggressively expanded its footprint in the generative AI space through partnerships and new solutions. Through its partnership with NVIDIA, Adobe is developing a generation of advanced generative AI models, with a focus on deep integration into applications. Adobe and Google also partnered to bring Firefly to Bard. Adobe Firefly is the most differentiated generative AI service that generates commercially viable, professional quality content.
Adobe has expanded its offerings powered by Adobe Sensei GenAI. It has unveiled Generative Fill in Photoshop, bringing Adobe Firefly generative AI capabilities directly to design workflows.
On the cost-cutting front, Adobe laid off about 100 employees in December 2022. Though it is a very small number compared with massive layoffs announced by other tech giants, the move reflects that Adobe has kept its operating expenses under check.
The stock carries a Zacks Rank #2 and a Growth Score of B at present. The Zacks Consensus Estimate for ADBE’s fiscal 2023 earnings is pegged at $15.93 per share, up by 58 cents over the past 30 days. This indicates year-over-year growth of 16.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Salesforce has been benefiting from the strong adoption of its cloud-based products and solutions as customers are undergoing a major digital transformation in the ongoing hybrid work environment. Its ability to provide an integrated solution for customers’ business problems is the key driver.
Salesforce is currently focusing on incorporating generative AI tools across its products as it looks to keep its business ahead of rivals. The company forayed into the generative AI space with the launch of Einstein GPT in March 2023. Upping its ante in the space, last month, Salesforce launched its AI Cloud service, which the company claims is a one-stop AI-powered solution for enterprises looking to enhance productivity.
Furthermore, the company is cutting costs and raising product prices to improve profitability. To cut costs, Salesforce announced a broader restructuring plan in early January 2023. Under the plan, it intends to lay off approximately 10% of its total global workforce, exit real estate and shut down office spaces in certain markets.
Additionally, CRM hiked prices across its core products — Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau — by an average of 9%, effective from August 2023. We believe that the price hike will strengthen the company’s profitability.
Currently, Salesforce carries a Zacks Rank #2 and has a Growth Score of B. The Zacks Consensus Estimate for Salesforce’s fiscal 2024 earnings has been revised upward by 4 cents to $8.06 per share over the past 30 days, implying a year-over-year increase of approximately 53.8%.
Workday is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system that makes it easier for organizations to provide analytical insights and decision support. Apart from Financial Management and Human Capital Management (“HCM”) solutions, the company offers applications related to Payroll, Time Tracking, Recruiting, Learning, Planning, Professional Services Automation and Student.
Workday’s revenues continue to be aided by the high demand for its HCM and financial management solutions. The company’s cloud-based business model and expanding product portfolio have been the primary growth drivers.
Additionally, Workday is putting a strong focus on integrating advanced AI and machine learning capabilities. The ongoing AI-powered product development emphasizes natural language generation, content search, summarization, content augmentation and document understanding. This augurs well for the long-term growth of the company.
In late September 2023, the company introduced state-of-the-art AI-powered features to enhance the capability of the Workday Adaptive Planning solution. The newly introduced generative AI capability enables planners to validate unlimited scenarios with ease before implementing them into the operational workflow. Leveraging machine learning models, its predictive forecaster rapidly generates demand forecasts within a user-friendly interface.
Furthermore, in January 2023, Workday announced that it intends to lay off approximately 3% of its global workforce in response to a challenging global economic environment. We believe the decision would boost the company’s margins in the near term.
The stock carries a Zacks Rank #2 and a Growth Score of B at present. The Zacks Consensus Estimate for WDAY’s fiscal 2024 earnings is pegged at $5.58 per share, up by 27 cents over the past 60 days. This indicates year-over-year growth of 53.3%.
Image: Bigstock
3 Enterprise Software Stocks to Bet On Amid GenAI-Driven Rally
Enterprise software stocks such as Adobe (ADBE - Free Report) , Salesforce, Inc. (CRM - Free Report) and Workday (WDAY - Free Report) have made a remarkable comeback year to date (YTD) after a massive sell-off in 2022 on recession concerns, inflationary pressure, increased oil prices and higher interest rates. YTD, Adobe, Salesforce and Workday stocks have rallied 63%, 54.3% and 28.4%, respectively.
The aforementioned stocks have also outperformed the broader equity market. Major U.S. stock market indexes, the Nasdaq Composite, The Dow Jones Industrial Average and the S&P 500, have risen 28.1%, 1.6% and 12.7%, respectively, YTD.
Additionally, Adobe and Salesforce stocks have handily surpassed Technology Select Sector SPDR’s (XLK - Free Report) , the most important component of the broad market index, YTD gain of 36.4%. However, Workday’s YTD increase is lower than XLK’s gain.
What’s Behind This Rally?
With persistent inflationary pressure and softening demand, the fears of recession have not subsided yet. However, enterprise software companies have been focusing on cost-cutting measures to improve profitability and stay afloat amid these turbulent times. The strategies have boosted investors’ confidence, thereby enhancing their share prices.
Additionally, the success of OpenAI’s ChatGPT has demonstrated the AI technology’s potential to improve operations in almost every industry. Though AI has been around for years, the meteoric rise of OpenAI’s ChatGPT has captivated the world’s attention on the power of generative AI to augment human capability, suggesting that the AI boom may just get started.
Generative AI is a type of AI technology that can produce various types of content, including text, imagery, audio and synthetic data. The long-term growth prospect attached to this technology has led to a sharp rise in the share prices of AI-related technology and solutions providing mega-cap companies.
Enterprise Software Stocks to Consider
Considering the probable new demand for enterprise software integrated with generative AI features and a possible improvement in profitability due to cost-cutting initiatives, we believe there is still significant upward potential left in ADBE, CRM and WDAY stocks. Therefore, investors should invest in stocks that are fundamentally strong and can sustain market jitters and ensure solid portfolio returns.
We ran the Zacks Stock Screener to identify the aforementioned enterprise software stocks that have a favorable combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy).
The Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Additionally, per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or #2 and a Growth Score of A or B offer solid investment opportunities.
The abovementioned enterprise software stocks look promising based on their encouraging growth prospects, Zacks Rank and Growth Score. Let’s discuss the tech stocks in detail:
Adobe has aggressively expanded its footprint in the generative AI space through partnerships and new solutions. Through its partnership with NVIDIA, Adobe is developing a generation of advanced generative AI models, with a focus on deep integration into applications. Adobe and Google also partnered to bring Firefly to Bard. Adobe Firefly is the most differentiated generative AI service that generates commercially viable, professional quality content.
Adobe has expanded its offerings powered by Adobe Sensei GenAI. It has unveiled Generative Fill in Photoshop, bringing Adobe Firefly generative AI capabilities directly to design workflows.
On the cost-cutting front, Adobe laid off about 100 employees in December 2022. Though it is a very small number compared with massive layoffs announced by other tech giants, the move reflects that Adobe has kept its operating expenses under check.
The stock carries a Zacks Rank #2 and a Growth Score of B at present. The Zacks Consensus Estimate for ADBE’s fiscal 2023 earnings is pegged at $15.93 per share, up by 58 cents over the past 30 days. This indicates year-over-year growth of 16.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Adobe Inc. Price and Consensus
Adobe Inc. price-consensus-chart | Adobe Inc. Quote
Salesforce has been benefiting from the strong adoption of its cloud-based products and solutions as customers are undergoing a major digital transformation in the ongoing hybrid work environment. Its ability to provide an integrated solution for customers’ business problems is the key driver.
Salesforce is currently focusing on incorporating generative AI tools across its products as it looks to keep its business ahead of rivals. The company forayed into the generative AI space with the launch of Einstein GPT in March 2023. Upping its ante in the space, last month, Salesforce launched its AI Cloud service, which the company claims is a one-stop AI-powered solution for enterprises looking to enhance productivity.
Furthermore, the company is cutting costs and raising product prices to improve profitability. To cut costs, Salesforce announced a broader restructuring plan in early January 2023. Under the plan, it intends to lay off approximately 10% of its total global workforce, exit real estate and shut down office spaces in certain markets.
Additionally, CRM hiked prices across its core products — Sales Cloud, Service Cloud, Marketing Cloud, Industries and Tableau — by an average of 9%, effective from August 2023. We believe that the price hike will strengthen the company’s profitability.
Currently, Salesforce carries a Zacks Rank #2 and has a Growth Score of B. The Zacks Consensus Estimate for Salesforce’s fiscal 2024 earnings has been revised upward by 4 cents to $8.06 per share over the past 30 days, implying a year-over-year increase of approximately 53.8%.
Salesforce Inc. Price and Consensus
Salesforce Inc. price-consensus-chart | Salesforce Inc. Quote
Workday is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system that makes it easier for organizations to provide analytical insights and decision support. Apart from Financial Management and Human Capital Management (“HCM”) solutions, the company offers applications related to Payroll, Time Tracking, Recruiting, Learning, Planning, Professional Services Automation and Student.
Workday’s revenues continue to be aided by the high demand for its HCM and financial management solutions. The company’s cloud-based business model and expanding product portfolio have been the primary growth drivers.
Additionally, Workday is putting a strong focus on integrating advanced AI and machine learning capabilities. The ongoing AI-powered product development emphasizes natural language generation, content search, summarization, content augmentation and document understanding. This augurs well for the long-term growth of the company.
In late September 2023, the company introduced state-of-the-art AI-powered features to enhance the capability of the Workday Adaptive Planning solution. The newly introduced generative AI capability enables planners to validate unlimited scenarios with ease before implementing them into the operational workflow. Leveraging machine learning models, its predictive forecaster rapidly generates demand forecasts within a user-friendly interface.
Furthermore, in January 2023, Workday announced that it intends to lay off approximately 3% of its global workforce in response to a challenging global economic environment. We believe the decision would boost the company’s margins in the near term.
The stock carries a Zacks Rank #2 and a Growth Score of B at present. The Zacks Consensus Estimate for WDAY’s fiscal 2024 earnings is pegged at $5.58 per share, up by 27 cents over the past 60 days. This indicates year-over-year growth of 53.3%.
Workday, Inc. Price and Consensus
Workday, Inc. price-consensus-chart | Workday, Inc. Quote