The latest development in the world of generative AI, ChatGPT, has gone viral since OpenAI released it last year and has attracted billions of dollars in funding from tech investors. Additionally, the software industry is expected to thrive amid growing tech integration.
Investors looking for software stocks can consider buying Salesforce, Inc. (CRM) and PDF Solutions, Inc. (PDFS), which look poised to deliver steady returns this year.
AI is becoming increasingly popular due to its capacity to automate processes, analyze data, and make decisions fast, creating opportunities for established players and start-ups. The global artificial intelligence software market is anticipated to be worth roughly $1.09 trillion by 2032, up from $138.40 billion in 2022.
According to Gartner Inc. (IT), worldwide IT spending is expected to grow 2.4% year on year in 2023, and software and IT services segments are projected to grow 9.3% and 5.5% in 2023, respectively. Investors' interest in software stocks is evident from the SPDR S&P Software & Services ETF's (XSW) 6.7% returns over the past six months.
So, let's delve deeper into the stocks mentioned above:
Salesforce, Inc. (CRM)
CRM is a customer relationship management technology provider. The company's Customer 360 platform enables its customers to work together to deliver connected experiences.
On January 12, 2023, CRM announced many new initiatives to assist retailers in increasing and optimizing advertising sales, gaining a unified view of transactions across digital and physical stores, and extracting value from their consumer data.
Jujhar Singh, EVP and GM of CRM, said, "Salesforce for retail brings together the power and flexibility of Salesforce's platform with an expansive ecosystem so retailers can leverage real-time data to acquire new customers, deliver personalized experiences, generate advertising revenue, increase margins, and drive efficiency."
CRM's trailing-12-month gross profit margin of 73.34% is 49.1% higher than the industry average of 49.18%. Its trailing-12-month levered FCF margin of 33.99% is 403.6% higher than the 6.75% industry average.
CRM's total revenues increased 14.4% year-over-year to $8.38 billion for the fiscal fourth quarter that ended January 31, 2023. Its gross profit came in at $6.28 billion, up 18.3% from the prior-year quarter. Also, its subscription and support revenue came in at $7.79 billion, up 14.1% year-over-year.
CRM's revenue is expected to increase 8.6% year-over-year to $34.05 billion in 2024. Its EPS is expected to grow 11.6% year-over-year to $5.85 in 2024. It surpassed EPS estimates in each of the trailing four quarters. CRM's shares have gained 29.1% over the past three months to close the last trading session at $186.59.
CRM's POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CRM has an A grade for Growth and Sentiment. Within the Software - Application industry, it is ranked #26 out of 140 stocks. Click here for the additional POWR Ratings for Stability, Value, Momentum, and Quality for CRM.
PDF Solutions, Inc. (PDFS)
PDFS provides proprietary software and physical, intellectual property products for integrated circuit designs, electrical measurement hardware tools, proven methodologies, and professional services in the United States, China, Japan, Taiwan, and internationally.
PDFS' trailing-12-month gross profit margin of 67.75% is 37.8% higher than the industry average of 49.18%.
PDFS' total revenues came in at $40.52 million for the fourth quarter that ended December 31, 2022, up marginally year-over-year. Its analytics revenues came in at $36.10 million, up 9.7% year-over-year. Its total current liabilities came in at $193.41 million for the period ended December 31, 2022, compared to $188.51 million for the period ended December 31, 2021.
PDFS' revenue is expected to rise 14.9% year-over-year to $170.66 million in 2023. Its EPS is estimated to grow 15% year-over-year to $0.69 in 2023. It surpassed EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 53.1% to close the last trading session at $37.47.
It's no surprise that PDFS has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Growth and Sentiment and a B for Quality. It is ranked #16 in the same industry.
Beyond what is stated above, we've also rated PDFS for Stability, Value, and Momentum. Get all PDFS ratings here.
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CRM shares were trading at $186.84 per share on Friday morning, up $0.25 (+0.13%). Year-to-date, CRM has gained 40.92%, versus a 4.90% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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