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3 Internet Software Stocks to Buy From a Prospering Industry
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The Zacks Internet Software industry has been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. The high demand for Software as a Service or SaaS-based solutions due to the increasing need for remote working, learning and diagnosis software has been a major driver for industry players. The growing demand for solutions that support hybrid operating environments is a key catalyst. The increasing deployment of AI and generative AI is driving prospects. Industry players are leveraging AI to generate content that is keeping users engaged and attracting advertisers. Increasingly sophisticated cyberattacks have been driving cybersecurity application demand. Palantir Technologies (PLTR - Free Report) , Cloudflare (NET - Free Report) and Reddit (RDDT - Free Report) are benefiting from these trends. However, heightened geopolitical risks and tariff uncertainties are major headwinds.
Industry Description
The Zacks Internet Software industry comprises companies offering application performance monitoring, infrastructure and application software, DevOps deployment and Security software. Industry participants offer online payment solutions, asset optimization software, multi-cloud application security and delivery, social networking, 3D printing applications, and cloud content management solutions. They use the SaaS-based cloud computing model to deliver solutions to end-users, as well as enterprises. Hence, subscription is the primary revenue source. Advertising is also a major revenue source. Industry participants target a variety of end markets, including banking and financial services, construction, consumer packaged goods, education, energy, legal, various service providers, federal governments, and animal health technology and services.
3 Trends Shaping the Future of the Internet Software Industry
Adoption of SaaS Grows: The industry has been benefiting from the continued demand for digital transformation. Growth prospects are alluring due to the rapid adoption of SaaS, which offers a flexible and cost-effective delivery method for applications. It also cuts down on deployment time compared with legacy systems. SaaS attempts to deliver applications to any user, anywhere, anytime and on any device. It has been effective in addressing customer expectations of seamless communications across multiple channels, including voice, chat, email, web, social media and mobile. This increases customer satisfaction and raises the retention rate, driving the top lines of the industry participants. Moreover, the SaaS delivery model has supported industry players in delivering software applications amid the coronavirus-led lockdowns and shelter-in-place guidance. Remote work, learning and health diagnosis have also boosted the demand for SaaS-based software applications.
Pay-As-You-Go Model Gains Traction: The increasing customer-centric approach is allowing end-users to perform all required actions with minimal intervention from software providers. The pay-as-you-go model helps Internet Software providers scale their offerings according to different user needs. The subscription-based business model ensures recurring revenues for industry participants. The affordability of the SaaS delivery model, particularly for small and medium-sized businesses, is another major driver. The cloud-based applications are easy to use. Hence, the need for specialized training is reduced significantly, which lowers expenses, driving profits.
Ongoing Transition to Cloud Creates Opportunities: The growing need to secure cloud platforms amid the increasing incidences of cyberattacks and hacking drives the demand for web-based cybersecurity software. As enterprises continue to move their on-premise workload to cloud environments, application and infrastructure monitoring are gaining importance. This is increasing the demand for web-based performance management monitoring tools.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet Software industry, placed within the broader Zacks Computer and Technology sector, carries a Zacks Industry Rank #61, which places it in the top 25% of more than 250 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.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2025 have moved up 8% since April 30, 2025.
Given the positive outlook of the industry, there are several stocks worth picking for healthy portfolio returns. However, before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Internet Software industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index in the past year.
The industry has returned 9.2% over this period compared with the S&P 500’s jump of 14.4% and the broader sector’s appreciation of 24.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-sales (P/S), which is a commonly used multiple for valuing Internet Software stocks, we see that the industry is currently trading at 4.95X compared with the S&P 500’s 5.31X and the sector’s forward 12-month P/S of 6.8X.
Over the last five years, the industry has traded as high as 6.04X and as low as 4.75X, with a median of 5.61X, as the charts below show.
Forward 12-Month Price-to-Sales (P/S) Ratio
3 Stocks to Buy Right Now
Reddit: This Zacks Rank #1 (Strong Buy) stock is benefiting from strong growth in user engagement, including rising daily and weekly active users, ARPU gains and expanding advertiser tools like DPA, Reddit Pixel and CAPI. You can see the complete list of today’s Zacks #1 Rank stocks here.
Reddit’s expanding portfolio has been a major growth driver. The company’s unique ad solutions, such as DPA and interactive ad formats, are driving advertiser adoption and delivering strong performance outcomes. In the third quarter of 2025, Advertising revenues surged 74% year over year to $549 million, driven by both existing advertisers deepening their investments and a 75% rise in the active advertiser count.
Reddit shares have appreciated 59.8% in the past year. The Zacks Consensus Estimate for 2025 earnings has surged 25.7% to $2.35 per share over the past 30 days.
Price and Consensus: RDDT
Palantir Technologies: A Zacks Rank #2 (Buy) company, Palantir is benefiting from its AI strategy, driven by Foundry, Gotham, and AI Platform (AIP) platforms, which target government and commercial sectors, enabling real-time insights and operational efficiency.
Palantir’s core customer base comprises businesses seeking tailored AI/ML services, particularly large government and corporate clients willing to invest heavily in its systems. The modular sales approach expands beyond the core customer base, allowing clients to purchase specific product components instead of committing to the full platform upfront. This model also incorporates usage-based pricing, which lowers the entry barrier for new clients. These factors are driving PLTR’s top-line growth.
Palantir’s shares have appreciated 223.5% in the past year. The Zacks Consensus Estimate for its 2025 earnings is pegged at 73 cents per share, up 13.6% in the past 30 days.
Price and Consensus: PLTR
Cloudflare: This Zacks Rank #2 company is benefiting from an increasing customer base, driven by NET’s robust portfolio of security solutions. Growing momentum among large customers remains a major tailwind for Cloudflare. Aggravated cyberattacks, the hybrid working trend and a zero-trust approach are aiding it in winning multiple clients. A continuous focus on client retention based on high client satisfaction is driving the dollar-based net retention rate.
Cloudflare shares have surged 164.5% year to date. The Zacks Consensus Estimate for NET’s 2025 earnings is pegged at 90 cents per share, up by a nickel over the past 30 days.
Price and Consensus: NET
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3 Internet Software Stocks to Buy From a Prospering Industry
The Zacks Internet Software industry has been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. The high demand for Software as a Service or SaaS-based solutions due to the increasing need for remote working, learning and diagnosis software has been a major driver for industry players. The growing demand for solutions that support hybrid operating environments is a key catalyst. The increasing deployment of AI and generative AI is driving prospects. Industry players are leveraging AI to generate content that is keeping users engaged and attracting advertisers. Increasingly sophisticated cyberattacks have been driving cybersecurity application demand. Palantir Technologies (PLTR - Free Report) , Cloudflare (NET - Free Report) and Reddit (RDDT - Free Report) are benefiting from these trends. However, heightened geopolitical risks and tariff uncertainties are major headwinds.
Industry Description
The Zacks Internet Software industry comprises companies offering application performance monitoring, infrastructure and application software, DevOps deployment and Security software. Industry participants offer online payment solutions, asset optimization software, multi-cloud application security and delivery, social networking, 3D printing applications, and cloud content management solutions. They use the SaaS-based cloud computing model to deliver solutions to end-users, as well as enterprises. Hence, subscription is the primary revenue source. Advertising is also a major revenue source. Industry participants target a variety of end markets, including banking and financial services, construction, consumer packaged goods, education, energy, legal, various service providers, federal governments, and animal health technology and services.
3 Trends Shaping the Future of the Internet Software Industry
Adoption of SaaS Grows: The industry has been benefiting from the continued demand for digital transformation. Growth prospects are alluring due to the rapid adoption of SaaS, which offers a flexible and cost-effective delivery method for applications. It also cuts down on deployment time compared with legacy systems. SaaS attempts to deliver applications to any user, anywhere, anytime and on any device. It has been effective in addressing customer expectations of seamless communications across multiple channels, including voice, chat, email, web, social media and mobile. This increases customer satisfaction and raises the retention rate, driving the top lines of the industry participants. Moreover, the SaaS delivery model has supported industry players in delivering software applications amid the coronavirus-led lockdowns and shelter-in-place guidance. Remote work, learning and health diagnosis have also boosted the demand for SaaS-based software applications.
Pay-As-You-Go Model Gains Traction: The increasing customer-centric approach is allowing end-users to perform all required actions with minimal intervention from software providers. The pay-as-you-go model helps Internet Software providers scale their offerings according to different user needs. The subscription-based business model ensures recurring revenues for industry participants. The affordability of the SaaS delivery model, particularly for small and medium-sized businesses, is another major driver. The cloud-based applications are easy to use. Hence, the need for specialized training is reduced significantly, which lowers expenses, driving profits.
Ongoing Transition to Cloud Creates Opportunities: The growing need to secure cloud platforms amid the increasing incidences of cyberattacks and hacking drives the demand for web-based cybersecurity software. As enterprises continue to move their on-premise workload to cloud environments, application and infrastructure monitoring are gaining importance. This is increasing the demand for web-based performance management monitoring tools.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Internet Software industry, placed within the broader Zacks Computer and Technology sector, carries a Zacks Industry Rank #61, which places it in the top 25% of more than 250 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.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential. The industry’s earnings estimates for 2025 have moved up 8% since April 30, 2025.
Given the positive outlook of the industry, there are several stocks worth picking for healthy portfolio returns. However, before we present the top industry picks, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Internet Software industry has underperformed the broader Zacks Computer and Technology sector and the S&P 500 Index in the past year.
The industry has returned 9.2% over this period compared with the S&P 500’s jump of 14.4% and the broader sector’s appreciation of 24.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-sales (P/S), which is a commonly used multiple for valuing Internet Software stocks, we see that the industry is currently trading at 4.95X compared with the S&P 500’s 5.31X and the sector’s forward 12-month P/S of 6.8X.
Over the last five years, the industry has traded as high as 6.04X and as low as 4.75X, with a median of 5.61X, as the charts below show.
Forward 12-Month Price-to-Sales (P/S) Ratio
3 Stocks to Buy Right Now
Reddit: This Zacks Rank #1 (Strong Buy) stock is benefiting from strong growth in user engagement, including rising daily and weekly active users, ARPU gains and expanding advertiser tools like DPA, Reddit Pixel and CAPI. You can see the complete list of today’s Zacks #1 Rank stocks here.
Reddit’s expanding portfolio has been a major growth driver. The company’s unique ad solutions, such as DPA and interactive ad formats, are driving advertiser adoption and delivering strong performance outcomes. In the third quarter of 2025, Advertising revenues surged 74% year over year to $549 million, driven by both existing advertisers deepening their investments and a 75% rise in the active advertiser count.
Reddit shares have appreciated 59.8% in the past year. The Zacks Consensus Estimate for 2025 earnings has surged 25.7% to $2.35 per share over the past 30 days.
Price and Consensus: RDDT
Palantir Technologies: A Zacks Rank #2 (Buy) company, Palantir is benefiting from its AI strategy, driven by Foundry, Gotham, and AI Platform (AIP) platforms, which target government and commercial sectors, enabling real-time insights and operational efficiency.
Palantir’s core customer base comprises businesses seeking tailored AI/ML services, particularly large government and corporate clients willing to invest heavily in its systems. The modular sales approach expands beyond the core customer base, allowing clients to purchase specific product components instead of committing to the full platform upfront. This model also incorporates usage-based pricing, which lowers the entry barrier for new clients. These factors are driving PLTR’s top-line growth.
Palantir’s shares have appreciated 223.5% in the past year. The Zacks Consensus Estimate for its 2025 earnings is pegged at 73 cents per share, up 13.6% in the past 30 days.
Price and Consensus: PLTR
Cloudflare shares have surged 164.5% year to date. The Zacks Consensus Estimate for NET’s 2025 earnings is pegged at 90 cents per share, up by a nickel over the past 30 days.
Price and Consensus: NET
