The global software market is witnessing significant growth, propelled by increased adoption of cloud-based solutions and applications. Therefore, investors could consider investing in top software stocks Microsoft Corporation (MSFT), Tenable Holdings, Inc. (TENB), and Yalla Group Limited (YALA) this week.

Increased enterprise data, automation, and digitization are driving the software market growth, further accelerated by the positive impact of the pandemic. This has led to companies prioritizing software solutions in the era of remote work.

The global software market is expected to grow at a CAGR of 11.5% from 2023 to 2030. Moreover, as per the latest forecast from Gartner (IT), global software spending is forecasted to grow 12.7% this year to reach $1.03 trillion.

Besides, the application security market grows due to a heightened focus on securing customer data, countering breaches, and meeting compliance, with a notable rise in demand for SaaS-based solutions. The global application security market is projected to grow at a CAGR of 18.7% from 2024 to 2030.

Furthermore, the application development software market is propelled by the rise in cloud-based solutions, IoT technology adoption, and the demand for advanced applications. Additionally, the use of low-code development platforms and the focus on DevOps and digitization contribute to market growth, overcoming initial challenges from the COVID-19 pandemic.

The market for application development software is expected to generate $179.90 billion in revenue in 2024. By 2028, this growth is anticipated to result in a market volume of $234.70 billion, expanding at a 6.9% CAGR.

Considering these conducive trends, let’s examine the fundamentals of the three software stock picks.

Microsoft Corporation (MSFT)

MSFT is a global technology company that develops and supports software, services, and devices, including Microsoft 365, Dynamics 365, Azure, and Surface. The company sells its products through various channels, such as OEMs, digital marketplaces, and retail stores.

On January 15, 2024, MSFT and Vodafone Group Public Limited Company (VOD) announced a 10-year partnership to serve over 300 million businesses and consumers in Europe and Africa.

The collaboration includes a $1.50 billion investment by VOD in cloud and AI services, leveraging MSFT's Azure OpenAI for enhanced customer experiences, and the modernization of Vodafone's data centers on MSFT Azure.

On November 28, 2023, MSFT declared a quarterly dividend of $0.75 per share, payable on March 14, 2024. The company pays $3 annually, which translates to a yield of 0.77% on the prevailing price level.

During the first quarter, which ended September 30, 2023, MSFT reported total revenue of $56.52 billion, up 12.8% year-over-year. The company’s operating income and net income increased 25% and 27% from the prior year’s quarter to $26.90 billion and $22.29 billion, respectively. Moreover, its EPS grew 27% from the previous year’s quarter to $2.99.

MSFT’s revenue and EPS are expected to grow 15.8% and 18.8% year-over-year to $61.06 billion and $2.76 for the second quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.

MSFT’s shares increased 62% over the past year to close the last trading session at $389.47.

MSFT’s POWR Ratings reflect its sound prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

MSFT has a B grade for Stability, Sentiment, and Quality. Within the B-rated Software - Business industry, it is ranked #11 of 43 stocks.

In addition to the POWR Ratings stated above, one can access MSFT’s additional Growth, Value, and Momentum ratings here.

Tenable Holdings, Inc. (TENB)

TENB provides global cyber exposure solutions, offering platforms like Tenable.io and Tenable.cs for risk assessment and cloud security. Its portfolio includes Nessus for vulnerability assessment and Tenable.ad for securing Active Directory environments.

On November 27, 2023, TENB announced a share repurchase program, authorizing the buyback of up to $100 million of its Common Stock. The repurchase program has no specified expiration date.

In the third quarter, which ended September 30, 2023, TENB’s revenue and gross profit grew 15.3% and 14.3% from the previous-year quarter to $201.53 million and $155.78 million, respectively. The company’s non-GAAP net income and EPS increased 61% and 53.3% year-over-year to $27.67 million and $0.23, respectively.

For the fiscal year ending December 31, 2023, TENB estimates the revenue to range from $789.40 million to $793.40 million and non-GAAP income from operations to be between $107.90 million and $108.90 million. Non-GAAP net income and EPS are anticipated to fall within $83 million - $84 million and $0.68 - $0.69, respectively.

In addition, unlevered free cash flow is expected to be in the range of $168 million to $173 million.

Analysts expect TENB’s revenue and EPS to rise 11.8% and 12.6% year-over-year to $206.49 million and $0.14, respectively, for the fourth quarter ended December 2023. The company surpassed the revenue and EPS estimates in each of the trailing four quarters.

The stock has gained 23.2% over the past year to close the last trading session at $47.07. It gained marginally intraday.

TENB’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Growth and Quality. Within the Software - Security industry, it is ranked #3 among 23 stocks.

To see TENB’s additional POWR Ratings for Value, Momentum, Stability, and Sentiment, click here.

Yalla Group Limited (YALA)

Based in Dubai, the United Arab Emirates, YALA runs a social networking and entertainment platform in the Middle East and North Africa, featuring voice-centric group chat on Yalla and casual gaming on Yalla Ludo. The platform offers group chatting, gaming services, virtual item sales, and upgrade options.

As part of the share repurchase program initiated on May 21, 2021, and extended until May 21, 2024, the company repurchased 1,670,735 American Depositary Shares (ADSs) in the third quarter of 2023. The total cash spent on the repurchase was approximately $8.50 million.

In the third quarter, which ended September 30, 2023, YALA’s revenues grew 6.4% year-over-year to $85.19 million. The company generated non-GAAP operating income and net income of $35.45 million and $38.28 million, up 20.4% and 30.3% from the previous-year quarter, respectively. Moreover, its non-GAAP EPS rose 23.5% from the prior-year quarter to $0.21.

For the fourth quarter of 2023, the company expects revenues to be between $73 million and $80 million.

Street expects YALA’s revenue and EPS to grow 4.6% and 24.2% year-over-year to $317.85 million and $0.75, respectively, for the fiscal year ended December 2023. The company surpassed the revenue estimates in each of the trailing four quarters, which is impressive.

YALA’s shares have gained 40.2% over the past nine months to close the last trading session at $5.44. It gained marginally intraday.

YALA’s POWR Ratings reflect an optimistic outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

The stock has an A grade for Value, Sentiment, and Quality. Within the Software - Application industry, it is ranked #6 among 133 stocks.

Click here for YALA’s additional Growth, Momentum, and Stability ratings.

What To Do Next?

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MSFT shares were trading at $392.15 per share on Thursday morning, up $2.68 (+0.69%). Year-to-date, MSFT has gained 4.28%, versus a -0.33% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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