From commerce to culture, software is digitizing every aspect of our lives. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on the returns lately as the industry has pulled back by 10.2% over the past six months. This drawdown was worse than the S&P 500’s 2.2% decline.

A cautious approach is imperative when dabbling in these businesses as the best will deliver robust earnings growth while the rest will be disrupted by competition and AI. With that said, here are two software stocks boasting durable advantages and one we’re passing on.

One SoftwareStock to Sell:

PubMatic (PUBM)

Market Cap: $574.2 million

Founded in 2006 as an online ad platform helping ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

Why Should You Dump PUBM?

1. Muted 6.6% annual revenue growth over the last three years shows its demand lagged behind its software peers
2. Estimated sales growth of 4.3% for the next 12 months implies demand will slow from its three-year trend
3. Gross margin of 64.9% is below its competitors, leaving less money to invest in areas like marketing and R&D

At $11.84 per share, PubMatic trades at 1.9x forward price-to-sales. Check out our free in-depth research report to learn more about why PUBM doesn’t pass our bar.

Two Software Stocks to Watch:

Confluent (CFLT)

Market Cap: $7.86 billion

Started in 2014 by the team of engineers at LinkedIn who originally built it as an internal tool, Confluent (NASDAQ: CFLT) provides infrastructure software for organizations that makes it easy and fast to collect and move large amounts of data between different systems.

Why Does CFLT Stand Out?

1. Billings growth has averaged 27.9% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
2. Sales outlook for the upcoming 12 months implies the business will stay on its desirable three-year growth trajectory
3. Free cash flow margin is on track to jump by 5.2 percentage points next year, meaning the company will have more resources to pursue growth initiatives, repurchase shares, or pay dividends

Confluent is trading at $23 per share, or 6.5x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.

DoubleVerify (DV)

Market Cap: $2.18 billion

When Oren Netzer saw a digital ad for US-based Target while sitting in his Tel Aviv apartment, he knew there was an unsolved problem, so he started DoubleVerify (NYSE: DV), a provider of advertising solutions to businesses that helps with ad verification, fraud prevention, and brand safety.

Why Are We Fans of DV?

1. Superior software functionality and low servicing costs are reflected in its premier gross margin of 82.3%
2. Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
3. Disciplined cost controls and effective management resulted in a strong trailing 12-month operating margin of 12.1%

DoubleVerify’s stock price of $13.35 implies a valuation ratio of 3.1x forward price-to-sales. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free.