Three Software Stocks That Could Go Parabolic

Keep your finger on the pulse of the market, and you’ll quickly realize that technology stocks, especially software stocks, have been surging to record highs. Indeed, the rallies in these stocks have ramped up in recent weeks, making it tough for most investors to get in on the action. However, not every software stock is riding the wave; several are lagging behind despite their clear potential upside. It’s time to capitalize on this temporary weakness and dive into three software stocks that may soon catch up to their peers and go parabolic.

1. Datadog (NASDAQ: DDOG)

First up is Datadog, a company whose name may not ring a bell for many investors. With a market cap of $40 billion, it’s not quite a small-cap stock, but it certainly doesn’t have the exposure of the giants. Datadog specializes in observability products designed for enterprises managing extensive networks of servers, applications, and cloud platforms. Simply put, it aids IT professionals in visualizing and optimizing the flow of digital data within complex computer networks.

According to technology market research firm Gartner, Datadog’s observability software ranks among the best this year, only slightly behind Dynatrace. Its platform is especially significant in the realm of cybersecurity, enabling IT teams to detect and respond to cyber threats in real time. The numbers tell a compelling story: Datadog’s revenue is expected to grow nearly 24% year-over-year, followed by another 22% growth in the subsequent year. Moreover, next year’s profits are projected to rise from $1.65 per share to $1.95. Despite its seemingly high stock valuation, the company’s financial trajectory paints a bullish picture that shouldn’t be ignored.

2. HubSpot (NYSE: HUBS)

Next, we turn our attention to HubSpot, a customer relationship management (CRM) software company that has made impressive strides in a market dominated by Salesforce. While Salesforce may have the upper hand in features and revenue, the very complexity that makes its platform appealing may also deter potential users. HubSpot has seized this opportunity by offering a simpler, less expensive, but equally effective alternative.

Market research indicates that HubSpot has grown to be a strong competitor, nearly matching Salesforce in market share, with just about 25% fewer paying customers. Gartner even recognizes HubSpot as the best in the world for delivering on its promises to customers. The company continues to show great potential, with expected top-line growth of nearly 19% this year and earnings growth outpacing revenue. It may have underperformed since April, but the fundamentals suggest it’s a stock worth watching.

3. Microsoft (NASDAQ: MSFT)

Finally, let’s not overlook Microsoft, a company that needs no introduction. Despite being a reliable performer over the years, Microsoft’s stock has stumbled since July, lagging behind its fellow tech giants. The primary concern is competition in the artificial intelligence (AI) space, where Microsoft has been perceived to be losing its early advantage. Recent downgrades from analysts at D.A. Davidson and Oppenheimer highlight these concerns, suggesting that Microsoft’s premium valuation may be unjustified amidst heightened competition.

However, investors should not be too quick to write off Microsoft. First, AI is just one aspect of Microsoft’s diversified revenue stream. Additionally, the company’s strong brand still resonates with consumers and corporations alike. Microsoft’s cloud computing segment is thriving and outpacing all competitors, including Amazon. Data from Synergy Research Group indicates that the company’s cloud business is on an upward trajectory, which is crucial in today’s technology environment. As its revenues and earnings continue to grow in the mid-teens range, a look at analyst projections reveals that 75% still rate Microsoft as a strong buy, with a price target of $497.04—nearly 20% above its current price.

Conclusion

Even as the majority of technology stocks surge to new heights, Datadog, HubSpot, and Microsoft showcase potential for remarkable growth. Datadog offers a unique and essential service in network observability, HubSpot addresses the need for streamlined CRM solutions, and Microsoft maintains its relevance through cloud computing, despite competitive challenges. With the market’s current landscape presenting temporary weaknesses for these stocks, it’s the perfect moment for discerning investors to capitalize on their potential for future parabolic movements.