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Why Shares in Autodesk Surged in May

By Lee Samaha – Jun 7, 2020 at 2:35PM

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The industrial software sector is one of the hottest areas to invest in 2020.

What happened

Shares in engineering software company Autodesk (ADSK -1.40%) rose 12.4% in May, according to data provided by S&P Global Market Intelligence. The move comes as part of an impressive rally from the industrial software companies, with peers Dassault Systemes and PTC both putting on double-digit gains in the month. In a nutshell, the market took a more positive outlook on global growth, and that's usually good news for the sector.

In addition, Autodesk continues to successfully migrate its customers toward a cloud based subscription model, from a license and maintenance model. 

An industrial engineer.

Image source: Getty Images.

There's a case for arguing that the COVID-19 pandemic will actually make Autodesk a stronger company as a result of its software as a service (SaaS) business model. This is because using cloud-based software (SaaS) is seen as more accommodative to remote working than on-premise software.

Moreover, the increased emphasis on digitizing businesses and automating production likely to result as a consequence of the pandemic will also favor industrial software companies. Autodesk, Dassault, and PTC all have their origins in on-premise computer aided design (CAD) software, but their future is also in digital technologies such as augmented reality, digital twins, and the internet of things

ADSK Chart

Data by YCharts

So what

The brighter outlook on growth is one thing, but it needs to be confirmed with a sustained period of growth after the recovery phase. That's key for a company like Autodesk. While it's true that the company has some secular tailwinds behind it (digitization and its SaaS migration), it's also true that companies will cut their research and development spending in a slowdown -- not good news for design software companies.

Now what

Aside from the obvious focus on the economy at large, investors will be watching closely to see if the increased interest in digitization flows through into a pickup in growth for Autodesk. It's definitely a sector to watch in 2020.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Autodesk. The Motley Fool recommends Dassault Systemes and PTC. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Autodesk, Inc. Stock Quote
Autodesk, Inc.
ADSK
$186.80 (-1.40%) $-2.66
Dassault Systemes SE Stock Quote
Dassault Systemes SE
DASTY
$34.49 (2.92%) $0.98
PTC Inc. Stock Quote
PTC Inc.
PTC
$104.60 (-1.01%) $-1.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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