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CRM and WDAY: Software Stocks You Can't Afford to Overlook

Dynamic trends in AI integration, accelerated digital transformation, and advancements in cloud-native technologies are propelling the software industry. Hence, it could be wise to keep an eye on robust software stocks, Salesforce (CRM) and Workday (WDAY) amid this surge. Read on...

Market dynamics have hastened digital transformation. This year, the synergy between AI integration and cloud-native advancements is set to heighten software efficiency. Therefore, one could consider adding resilient software stocks Salesforce, Inc. (CRM) and Workday, Inc. (WDAY) to their portfolio.

Before delving into the featured stocks, let’s examine the factors driving the software industry’s growth.

In the face of market pressures, organizations have expedited their digital transformation efforts in the past two years. Intense competition and the rising demand for tailored online experiences have been primary drivers. As a result, businesses have innovated digital products, leading to emerging trends in software development.

In 2023, generative AI (genAI) showcased its exponential influence on software development. This year, numerous development teams are expected to transition from experimentation to integrating TuringBots into their software development lifecycle.

The shift is expected to boost coder productivity by 20–50% on average, with some experiencing increases of 200% or more, particularly when seasoned engineers utilize genAI for unfamiliar languages or libraries.

The sector also stands to gain from the continuous advancement of cloud-native technologies. The evolution would foster reduced complexity, enhanced scalability, and improved cost-efficiency, providing organizations with superior performance and flexibility in their software operations.

Moreover, the increasing demand for AI and ML, spanning across various sectors beyond IT, augurs well for the industry. The trend is revolutionizing development processes by enabling informed decision-making, precise budgeting, rapid prototyping, thorough testing, and even offering programming support.

Both the software and IT services segments are projected to experience double-digit growth in 2024. Global expenditure on public cloud services is expected to surge by 20.4% this year, driven by a combination of cloud vendor price hikes and heightened utilization, akin to the trends observed in 2023.

Gartner (IT) forecasts a 12.7% annual rise in global software spending, set to hit $1.03 trillion by 2024, outpacing the 6.8% growth in total IT expenditure, projected to reach $5 trillion. This emphasizes the pivotal role of software in driving and amplifying technological advancements across the industry.

Concurrently, Statista projects that revenue in the software market will reach $698.80 billion by 2024. This is because the demand for application development software is expected to steadily increase in the coming years due to the necessity for scalable and tailored software solutions

Simultaneously, as per a report by Grand View Research, the global application development software market is projected to grow at a CAGR of 24.3%, reaching $733.50 billion by 2028. In light of these encouraging trends, let’s look at the fundamentals of the two Software - Application stocks, beginning with number 2.

Stock #2: Salesforce, Inc. (CRM)

CRM offers Customer Relationship Management (CRM) technology, which facilitates communication between businesses and consumers. Its services include sales for data storage, lead and progress monitoring, opportunity forecasting, analytics and relationship intelligence insights, and the delivery of quotes, contracts, and invoices.

On February 27, 2024, CRM introduced the public beta availability of Einstein Copilot, an AI assistant tailored for customer relationship management. Unlike competitors, it utilizes proprietary company data, ensuring personalized and secure interactions.

The innovation could benefit CRM by optimizing workflows, enhancing customer engagement, and minimizing costs associated with AI model training.

On January 14, 2024, CRM introduced data and AI-powered tools to enhance shopping experiences. By integrating generative AI into Commerce and Marketing Clouds, the company will empower retailers to understand customer behavior in real time, driving loyalty, revenue, and employee productivity. This positions CRM for increased market share and profitability.

For the fourth quarter of fiscal 2024, which ended January 31, 2024, CRM’s total revenues increased 10.8% year-over-year to $9.29 billion. Its non-GAAP income from operations rose 19.3% from the year-ago value to $2.92 billion.

Additionally, the company’s non-GAAP net income and non-GAAP net income per share grew 35.9% and 36.3% from the prior year’s period to $2.25 billion and $2.29, respectively.

Analysts anticipate CRM’s revenue to increase 10.4% year-over-year to $38.49 billion for the fiscal year ending January 2025. Likewise, the company’s EPS for the current year is estimated to rise 16.6% from the prior year to $9.58. Moreover, CRM topped the consensus revenue and EPS estimates in each of the trailing four quarters.

Shares of CRM have gained 41.6% over the past six months and 83.2% over the past year, closing the last trading session at $299.77.

CRM’s sound outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

CRM has an A grade for Sentiment and a B for Growth and Quality. It is ranked #18 out of 131 stocks within the Software - Application industry.

In addition to the POWR Ratings I’ve highlighted, you can see CRM’s Value, Momentum, and Stability ratings here.

Stock #1: Workday, Inc. (WDAY)

WDAY offers enterprise cloud applications facilitating planning, execution, analysis, and integration across diverse environments. Additionally, it delivers spend management solutions to streamline supplier selection, contract management, indirect spend oversight, and sourcing event execution for enhanced business operations and efficiency.

On February 26, 2024, WDAY announced its acquisition of HiredScore, a top AI-driven talent orchestration solutions provider. It will enable WDAY to expand its offerings, enhancing talent acquisition and internal mobility capabilities. The comprehensive solution could position WDAY as a leader in addressing evolving workforce needs driving customer satisfaction and market growth.

On February 8, 2024, WDAY and Insperity, Inc. (NSP) unveiled an exclusive strategic partnership to develop a premier HR solution for small and midsize businesses. Combining WDAY's cutting-edge technology with NSP's unparalleled service, the collaboration promises an industry-leading solution to accelerate success for growing companies. This should bode well for WDAY's growth.

For fiscal 2024 fourth quarter that ended January 31, 2024, WDAY’s revenue increased 16.8% year-over-year to $1.92 billion. Its non-GAAP operating income grew 51.1% from the year-ago value to $461 million.

Moreover, the company’s non-GAAP net income and non-GAAP net income per share rose 64.5% and 58.6% from the prior year’s period to $421 million and $1.57, respectively.

The consensus revenue estimate of $8.41 billion for the fiscal year ending January 2025 indicates a 15.9% year-over-year increase. Similarly, the consensus EPS estimate of $6.65 for the ongoing period exhibits a 13.8% year-over-year growth. Also, the company surpassed the consensus revenue and EPS estimates in each of the four trailing quarters.

The stock has gained 24.9% over the past six months and 59.1% over the past year to close the last trading session at $295.16.

WDAY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.

WDAY has an A grade for Growth and a B for Sentiment and Quality. It is ranked #9 out of 131 stocks within the same industry.

Click here to access additional WDAY ratings for Value, Momentum, and Stability.

What To Do Next?

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CRM shares were unchanged in premarket trading Thursday. Year-to-date, CRM has gained 13.92%, versus a 6.51% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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