On Friday, RBC Capital Markets released its software sector outlook for 2025, highlighting top stock picks across various market capitalizations. The firm expressed a positive stance on the industry, anticipating another promising year driven by multiple catalysts. For investors seeking deeper insights into software companies, InvestingPro offers comprehensive analysis of over 1,400 US stocks, including detailed financial health scores and Fair Value estimates.
Adobe (NASDAQ:ADBE), Microsoft (NASDAQ:MSFT), and Snowflake (NYSE:NYSE:SNOW) were selected as the top large-cap picks, with GitLab (NASDAQ:GTLB) and Guidewire Software (ETR:SOWGn) (NYSE:NYSE:GWRE) as mid-cap favorites, and Clarivate (NYSE:CLVT), Magnite (NASDAQ:MGNI), and Varonis Systems (NASDAQ:VRNS) in the small-cap space. Additionally, Dynatrace (NYSE:NYSE:DT), MongoDB (NASDAQ:MDB), and Nexign (unlisted) were identified as non-consensus ideas that could surprise investors.
Adobe's stock, despite facing increased competition, is expected to maintain its market share and customer lifetime value due to its strategic integration of Experience Cloud and Creative Cloud.
RBC Capital Markets believes that Adobe is well-positioned in the generative editing space, which has significant monetizable potential, and sees the company as a beneficiary of generative AI within marketing.
According to InvestingPro, Adobe demonstrates impressive financial metrics, with detailed analysis available in the Pro Research Report, which transforms complex Wall Street data into actionable intelligence.
Microsoft's position to capitalize on generative AI (GenAI) and increased technology spending was also emphasized. The firm regards Microsoft's diverse market exposure, including both cyclical and mission-critical growth segments, as a strong foundation for sustained growth. Microsoft's distribution channels, installed base, and bundling strategies were noted as key advantages.
For Snowflake, RBC Capital Markets pointed out the improvement in underlying demand trends and the potential for revenue growth from new applications and AI workloads. The firm highlighted the company's large and expanding total addressable market (TAM), pace of product innovation, and depth of product penetration.
Snowflake's CEO, Sridhar Ramaswamy, was commended for his ability to navigate the company's product strategy in a GenAI environment. RBC Capital Markets also dismissed concerns over declining storage revenue, suggesting that the Iceberg formats could actually boost Snowflake's revenue growth.
The report from RBC Capital Markets encapsulates a comprehensive analysis, including an institutional investor survey, detailed valuation work, merger and acquisition perspectives, software job postings, and more.
This outlook is based on the stabilized and improved spending trends, the potential for GenAI to drive new innovations, and the expectation for first half of 2025 estimates to benefit from easy comparisons as management teams focus on growth.
For investors looking to conduct their own in-depth analysis, InvestingPro provides advanced screening tools, Fair Value estimates, and financial health scores across the entire software sector, helping identify both opportunities and potential risks in this dynamic market.
In other recent news, Nexxen International Ltd. has made several significant announcements. The company disclosed the outcomes of its Annual General Meeting, but did not detail the specific resolutions approved. Nexxen also initiated a $50 million share repurchase program, a move seen as a strategy to manage capital allocation and shareholder value. The company has expressed its intention to delist from the AIM market, a decision to be discussed at a future Annual General Meeting.
Analyst firms Needham and RBC Capital have shown confidence in Nexxen's future. Needham maintains a Buy rating and raised the stock's price target to $9.50, while RBC Capital maintains an Outperform rating and increased its price target from $9 to $11. Needham's analysis projects a 10% net revenue growth and a 69% EPS growth rate for Nexxen in 2025.
Nexxen plans to increase its end-to-end revenues, which include Demand-Side Platform and Supply-Side Platform revenues, from 50% to 60% of total revenues. The company also plans to expand its revenue streams by incorporating new VIDAA Automatic Content Recognition Connected TV data revenues through collaborations.
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