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3 Internet Software Stocks to Buy From a Prospering Industry
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The Zacks Internet Software industry is benefiting from the high demand for AI-powered SaaS solutions due to the increasing need for remote working, learning and diagnosis software has been a major driver for industry players. 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. Industry players like Arista Networks (ANET - Free Report) , Automatic Data Processing (ADP - Free Report) and Reddit (RDDT - Free Report) have been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. However, internet software stocks have seen volatility as fears of AI disrupting the traditional Software as a Service (SaaS) space continue to gain traction. 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 #70, which places it in the top 29% 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 2026 have moved up 3.6% since June 30, 2025.
Given the bullish outlook of the industry, there are a number of 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 dropped 7.5% over this period compared with the S&P 500’s jump of 32.8% and the broader sector’s appreciation of 51.8%.
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 3.84X compared with the S&P 500’s 5.21X and the sector’s forward 12-month P/S of 6.62X.
Over the last five years, the industry has traded as high as 6.11X and as low as 3.63X, with a median of 5.20X, as the charts below show.
ANET’s cloud networking solutions promise predictable performance along with programmability that enables integration with third-party applications for network management, automation and orchestration. The company surpassed shipments of 150 million cumulative ports in the fourth quarter of 2025 with healthy momentum from the Arista 2.0 strategy.
Arista Networks’ shares have appreciated 33.1% year to date (YTD). The Zacks Consensus Estimate for 2026 earnings has inched up by a penny to $3.54 per share over the past 30 days.
Price and Consensus: ANET
Automatic Data Processing: Another Zacks Rank #2 company, ADP aspires to grow on the back of its three-tier business strategy and use its transformation initiatives to innovate and expand margins. Acquisitions have been pivotal in ADP’s ability to operate across borders. Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company acquisitions have strengthened ADP’s customer base and are helping it expand operations in international markets.
ADP shares have dropped 16.8% YTD. The Zacks Consensus Estimate for its fiscal 2026 earnings is pegged at $11.02 per share, up 6 cents in the past 30 days.
Price and Consensus: ADP
Reddit: This Zacks Rank #2 company 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. Reddit’s AI-powered features, including Reddit Answers, are key catalysts in enhancing content discovery and personalization.
Reddit shares have dropped 26.6% YTD. The Zacks Consensus Estimate for Reddit’s 2026 earnings is pegged at $4.02 per share, unchanged over the past 30 days.
Price and Consensus: RDDT
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3 Internet Software Stocks to Buy From a Prospering Industry
The Zacks Internet Software industry is benefiting from the high demand for AI-powered SaaS solutions due to the increasing need for remote working, learning and diagnosis software has been a major driver for industry players. 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. Industry players like Arista Networks (ANET - Free Report) , Automatic Data Processing (ADP - Free Report) and Reddit (RDDT - Free Report) have been benefiting from accelerated demand for digital transformation and the ongoing shift to the cloud. However, internet software stocks have seen volatility as fears of AI disrupting the traditional Software as a Service (SaaS) space continue to gain traction. 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 #70, which places it in the top 29% 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 2026 have moved up 3.6% since June 30, 2025.
Given the bullish outlook of the industry, there are a number of 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 dropped 7.5% over this period compared with the S&P 500’s jump of 32.8% and the broader sector’s appreciation of 51.8%.
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 3.84X compared with the S&P 500’s 5.21X and the sector’s forward 12-month P/S of 6.62X.
Over the last five years, the industry has traded as high as 6.11X and as low as 3.63X, with a median of 5.20X, as the charts below show.
Forward 12-Month Price-to-Sales (P/S) Ratio
3 Stocks to Buy Right Now
Arista Networks: This Zacks Rank #2 (Buy) stock is benefiting from the expanding cloud networking market, which is driven by the strong demand for scalable infrastructure. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ANET’s cloud networking solutions promise predictable performance along with programmability that enables integration with third-party applications for network management, automation and orchestration. The company surpassed shipments of 150 million cumulative ports in the fourth quarter of 2025 with healthy momentum from the Arista 2.0 strategy.
Arista Networks’ shares have appreciated 33.1% year to date (YTD). The Zacks Consensus Estimate for 2026 earnings has inched up by a penny to $3.54 per share over the past 30 days.
Price and Consensus: ANET
Automatic Data Processing: Another Zacks Rank #2 company, ADP aspires to grow on the back of its three-tier business strategy and use its transformation initiatives to innovate and expand margins. Acquisitions have been pivotal in ADP’s ability to operate across borders. Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company acquisitions have strengthened ADP’s customer base and are helping it expand operations in international markets.
ADP shares have dropped 16.8% YTD. The Zacks Consensus Estimate for its fiscal 2026 earnings is pegged at $11.02 per share, up 6 cents in the past 30 days.
Price and Consensus: ADP
Reddit: This Zacks Rank #2 company 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. Reddit’s AI-powered features, including Reddit Answers, are key catalysts in enhancing content discovery and personalization.
Reddit shares have dropped 26.6% YTD. The Zacks Consensus Estimate for Reddit’s 2026 earnings is pegged at $4.02 per share, unchanged over the past 30 days.
Price and Consensus: RDDT