We are in the final stretch of a super volatile year for the technology sector, which witnessed data privacy concerns, GDPR implementation in Europe, NAND price crash and tariffs on semiconductors as a result of the U.S.-China trade war.
However, some areas within the technology sector continue to shine. Software industry is one of them.
This is evident from strong year-to-date performance of Invesco Dynamic Software ETF (PSJ - Free Report) , which has gained 13.4%. Moreover, SPDR S&P Software & Services ETF (XSW - Free Report) and iShares North American Tech-Software ETF (IGV - Free Report) have returned 5.5% and 9.5%, respectively.
Notably, Technology Select Sector SPDR ETF (XLK - Free Report) has lost 4.1% over the same time.
What’s Driving the Software Industry?
Software has become the focal point of technological innovation. Proliferation of cloud computing, predictive analysis, artificial intelligence (AI) and tools like machine learning, digital personal assistants and Internet of Things (IoT) is boosting growth of the software industry.
Moreover, increasing focus on providing better customer experiences is boosting growth of customer relationship management (CRM) software. Cloud software is likely to witness more than 22% growth this year compared to 6% growth for all other Software forms, adds Gartner.
Additionally, continued enterprise investment in Big Data and analytics along with the ongoing adoption of Software-as-a-Service (SaaS) presents significant growth opportunity.
Further, as enterprises continue to move their on-premise workload to cloud environments (emergence of hybrid cloud), application and infrastructure monitoring have gained utmost importance.
Notably, software providers are adjusting their business model to keep up with changing requirements of clients. Subscription and term-license based revenue pricing models have become extremely popular and these are replacing the legacy upfront payment model.
Per Gartner, global IT spending is projected to grow 3.2% in 2019 to $3.8 trillion driven by enterprise software, cloud and digital transformation efforts. Enterprise software spending, which is likely to experience the highest growth of 8.3% in 2019, is being driven by SaaS, adds Gartner.
5 Top Picks
Here we have highlighted five software stocks with a favorable combination of a Zacks Rank #1 (Strong Buy) and a Growth Score of A or B. Our research shows that stocks with Growth Score of A or B when combined with a Zacks Rank #1 or #2 (Buy) offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Materialise (MTLS - Free Report) is a provider of additive manufacturing software and 3D printing services. The company has a Growth Score of A and delivered average four-quarter positive earnings surprise of 87.5%. Shares have gained 50% year to date.
eGain (EGAN - Free Report) provides customer engagement solutions in the United States. The stock has a Growth Score of A and delivered average four-quarter positive earnings surprise of 105.6%. Shares have advanced 11.4% year to date.
Upland Software (UPLD - Free Report) is a provider of cloud-based Enterprise Work Management software. The stock has a Growth Score of B and delivered average four-quarter positive earnings surprise of 23.2%. Shares have returned 25.4% year to date.
Alteryx (AYX - Free Report) provides self-service data analytics software platform. The stock has a Growth Score of B and delivered average positive earnings surprise of 132.64% in the trailing four quarters. We note that in the year-to-date period, the stock has soared nearly 112.3%.
Attunity (ATTU - Free Report) is a seller of data integration and Big Data management software solutions. The company has a Growth Score of B and delivered average four-quarter positive earnings surprise of 235.6%. Shares have gained 167.7% year to date.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>