The Zacks Computer Software industry participants are well-positioned to benefit from the accelerated digital transformation drive globally. The shift to cloud and the rise of SaaS (Software-as-a-Service) models offer recurring revenue visibility for vendors while offering flexibility and scalability for users. The industry growth is also being fueled by the proliferation of artificial intelligence (AI) and machine learning (ML). The cutting-edge technologies are being integrated into enterprise and consumer applications. Software vendors are increasingly embedding generative AI into productivity tools, customer service platforms, and enterprise resource planning systems.

According to a Grand View Research report, the global software market is expected to witness a CAGR of 11.3% from 2025 to 2030 and reach 1,397.31 billion. These trends augur well for industry participants, such as Microsoft Corporation (MSFT Quick QuoteMSFT - Free Report) , PTC Inc (PTC Quick QuotePTC - Free Report) and Manhattan Associates (MANH Quick QuoteMANH - Free Report) . Uncertainty prevailing over global macroeconomic conditions and stiff competition continues to be concerning for the participants.   

Industry Description

The Zacks Computer Software industry includes companies that provide software applications related to AI, cloud computing, electronic design automation (primarily for semiconductor and electronics industries), digital media and marketing, customer relationship management, on-premises and cloud-based database management, accounting and tax purposes, human capital management, cybersecurity and application performance monitoring and cloud-based enterprise communications platform. Some companies develop and market simulation software (like computer-aided design or CAD, 3D modeling, product lifecycle management or PLM, data orchestration and experience creation), which engineers, designers and researchers use across various industries like architecture, engineering and construction, product design, manufacturing and digital media.

3 Trends Shaping the Future of the Software Industry

Higher Spending on AI and Cloud: The industry’s prospects are bright, given higher spending by enterprises on the latest software upgrades. The continued investment in AI, big data and analytics and the ongoing adoption of SaaS open up opportunities for these players. Going ahead, AI and ML tech are expected to be widely integrated into the software tools. This increasing demand for AI-powered software tools for automation, personalization, predictive analytics and decision-making augurs well. 

Further, cloud computing will continue to be a dominant force in the software industry, with businesses adopting hybrid and multi-cloud environments to meet their growing needs for flexibility and scalability. Cloud offers a flexible and cost-effective platform for developing and testing applications. The deployment time is also shorter compared with legacy systems. SaaS companies are expected to register strong top-line growth on a higher percentage of recurring revenues, subscription gross margin and a lower churn rate. 

Increased Cybersecurity Focus: The increasing need to secure cloud platforms amid growing cyberattacks and hacking incidents drives demand for cybersecurity software. As software becomes more interconnected, cloud-native and AI-powered, it is driving the demand for performance management monitoring tools that are scalable and suitable for cloud-based environments. Zero-trust architectures, identity and access management and real-time threat detection underpinned by AI are becoming key features of next-gen software platforms. 

Macroeconomic Headwinds a Concern: Global macroeconomic weakness and volatile supply chain dynamics are persistent concerns. Though tariff troubles are unlikely to affect the software industry directly, higher tariffs on hardware would lead to higher costs. This would affect the software pricing as well. Inflation could affect spending across small and medium-sized businesses globally. The uncertainty in business visibility could dent the industry’s performance in the near term. According to a report from Gartner, worldwide IT spending is now projected to reach $5.43 trillion in 2025, calling for an increase of 7.9% from 2024 levels. This is below its January forecast of 9.8% growth. The research firm added that spending on software and services will slow down due to this global uncertainty, but AI-related infrastructure spending will continue to increase. 

Zacks Industry Rank Indicates Bright Prospects

The Zacks Computer Software industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #95, which places it in the top 39% of more than 245 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few stocks you may want to consider for your portfolio, given their bright prospects, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms the Sector and S&P 500

The Zacks Computer Software industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index in the past year.

The industry has gained 18.2% over this period compared with the S&P 500 and the broader sector’s increase of 18.8% and 30%, respectively.

One-Year Price Performance

 

Industry's Current Valuation

Based on the forward 12-month P/E, a commonly used multiple for valuing software companies, we see that the industry is currently trading at 33.11X compared with the S&P 500’s 23.24X. It is also above the sector’s forward-12-month P/E of 28.69X.

In the last five years, the industry has traded as high as 34.97X and as low as 27.4X, with the median being 31.71X, as the chart below shows.

Forward 12-Month Price-to-Earnings (P/E) Ratio

Forward 12-Month P/E Ratio

 

3 Software Stocks to Strengthen Portfolio

Manhattan Associates: Atlanta, GA-based Manhattan Associates provides supply chain execution and optimization solutions. It enables operational excellence through its warehouse, transportation, distributed order management, reverse logistics and trading partner management solutions, as well as its RFID, performance management and event management capabilities. 

MANH has a strong presence across verticals, including food distribution, life sciences, retail, grocery, industrial, technology, airlines, and third-party logistics. Driven by strong demand, MANH reported a 22% increase in cloud revenues for the second quarter of 2025. 70% of MANH’s new cloud bookings were generated from net new logos. New logos represented 35% of the current pipeline. Total revenues were up 2.7% year over year. RPO jumped 26% year over year and exceeded $2 billion at the quarter-end.

MANH expects bookings from net new logos to return to the standard one-third of the bookings over time. It is investing in sales and marketing to boost sales velocity and capture a large portion of its addressable market.

MANH currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for the company’s 2025 earnings is pegged at $4.81 per share, indicating year-over-year growth of 1.9%. The stock has plunged 20.1% in the past year. 

Price and Consensus: MANH

PTC: Boston, MA-based PTC offers a comprehensive portfolio of software solutions comprising the product lifecycle management (PLM) and computer-aided design (CAD) product lines, which contributed 62% and 38% of fiscal 2024 revenues, respectively. Its software can be delivered on premises, in the cloud, or in a hybrid model.

PTC is well-poised to gain from steady ARR and free cash flow growth, continued deleveraging and ongoing share buybacks. ARR strength is bolstered by its broad product portfolio and increased investment in cloud and SaaS offerings. Fiscal 2025 has been a milestone year for PTC’s AI strategy, with key releases and progress across products like ServiceMax, Windchill, Codebeamer, Onshape and Arena. Customer feedback has been very positive, and more AI features are planned for the fiscal fourth quarter and fiscal 2026. PTC’s partnership with NVIDIA shows the potential of combining product data intelligence with advanced innovation.

In the fiscal third quarter, PTC made further progress in AI. It launched Creo 12, its most advanced CAD release yet, featuring AI-driven generative design. In PLM, it introduced Arena Supply Chain Intelligence to provide AI-powered supply chain risk monitoring within the PLM environment.

PTC’s go-to-market initiative aims to strengthen the company’s ability to scale and better serve customers. By optimizing its sales and marketing organization, PTC is positioning itself to enhance customer value and capture new opportunities in a competitive market. Its fiscal third-quarter results reflect steady progress in its go-to-market transformation. The team is building a more consistent operating rhythm, with healthy pipeline creation, improving win rates and better ramp-up from new reps. 

PTC carries a Zacks Rank #2 (Buy) at present. The Zacks Consensus Estimate for the company’s fiscal 2025 earnings is pegged at $6.69 per share, indicating year-over-year growth of 31.7%. The stock has gained 18% in the past year.

Price and Consensus: PTC

Microsoft: Microsoft is a structurally dominant force in the tech space. The company is a leader in the cloud infrastructure space with its Azure platform and is now rapidly making inroads in the AI infrastructure space. OpenAI investment is the crown jewel for MSFT, which has positioned Azure as the ideal platform for AI workloads. It is integrating AI capabilities across Office, GitHub and Dynamics. 

MSFT has altered every Azure region into an AI-first environment with liquid cooling capabilities, positioning itself at the forefront of the AI infrastructure boom. Over the past year, the company has added more than 2 GW of new datacenter capacity, and now has over 400 datacenters across 70 regions. 

Microsoft also launched the Microsoft Sovereign Cloud in the fourth quarter of fiscal 2025. It is one of the most wide-ranging solutions spanning both public and private cloud deployments, designed to meet customers' unique data residency and sovereignty requirements. The company has added a modern data lake to Microsoft Sentinel, integrating customer data across first-party tools and over 350 third-party connectors.

Microsoft delivered exceptional fiscal 2025 performance with total revenue reaching $281.7 billion, surging 15% year over year, with the AI business alone exceeding $13 billion annual revenue run rate, growing 175% year over year. Microsoft Cloud revenues exceeded $168 billion with 23% growth. Azure and other cloud services achieved a remarkable $75 billion in annual revenue with 34% growth. For Intelligent Cloud, Microsoft anticipates revenues between $30.1 billion and $30.4 billion for the current quarter. 

MSFT carries a Zacks Rank #2 at present. The Zacks Consensus Estimate for the company’s fiscal 2026 earnings is pegged at $15.35 per share, indicating year-over-year growth of 12.5%. The stock has gained 18.2% in the past year.

Price and Consensus: MSFT