3 Software Stocks to Watch Amid Troubled Industry Trends

Core Insights - The Zacks Computer Software industry is positioned to benefit from the global digital transformation, particularly through cloud transition and advancements in AI and machine learning [1][3][4] Industry Overview - The Zacks Computer Software industry encompasses companies providing software applications in AI, cloud computing, digital media, customer relationship management, cybersecurity, and more [2] Trends Influencing the Industry - Increased enterprise spending on AI and cloud computing is expected to drive growth, with a projected 14.2% growth in software by 2025 due to generative AI hardware upgrades [3][4] - The demand for cybersecurity software is rising due to increased cyber threats, leading to a focus on cloud security and performance monitoring tools [5] Macroeconomic Factors - Global macroeconomic challenges and supply chain volatility are concerns, with potential impacts on software pricing and spending, particularly among small and medium-sized businesses [6] Industry Performance - The Zacks Computer Software industry ranks 135, placing it in the bottom 45% of over 246 Zacks industries, indicating dull near-term prospects [7][8] - The industry has underperformed compared to the broader Zacks Computer and Technology sector and the S&P 500, declining 2% over the past year while the S&P 500 and sector increased by 10.5% and 10.4%, respectively [9] Valuation Metrics - The industry is currently trading at a forward 12-month P/E ratio of 28.19X, higher than the S&P 500's 20.92X and the sector's 24.25X [11] Company Highlights - ACI Worldwide (ACIW): Expected revenue growth of 10% in 2024, with adjusted EBITDA of $466 million up 18$3.86 per share [18] - Microsoft (MSFT): Dominates the PC software market with over 73% market share, fiscal 2025 earnings expected at $13.08 per share, indicating a year-over-year growth of 10.9% [20][22]