Could This Software Stock Be a Top Infrastructure Play?

There is likely to be hundreds of billions, if not trillions, of dollars in infrastructure spending over the next several years, and there are several ways investors can get exposure. In this Fool Live video clip, recorded on Sept. 13, senior analyst Asit Sharma discusses why software company Autodesk (ADSK -0.89%) could be a big winner.

Asit Sharma: I think this is my favorite idea out of my three for infrastructure [Note: The other two were Deere & Co. and Union Pacific]. The company makes, of course, computer-assisted design software. Most of us will have encountered it somewhere in that capacity, but it's also become a much larger company in the place that invests in. It's seeking to provide not just this type of computer modeling, but also software that takes specifically in the construction industry, a project from the planning phase, all the way through the manufacturing phase.

They're really trying to be a one stop shop for construction projects. They have a business division, which I really like. Architectural, engineering, and construction, which combines all three of those ideas into a suite of software. They've made a transition to the cloud over the last three years, so they had a period where they were selling their licenses basically as on-premise and in these yearly renewals. By converting to a more cloud-based subscription model like many their peers, they've been able to really juice up their cash flows.

A large company, but still growing at a really good clip. The most recent quarter revenues grew about 16% year over year. Their billings, which is a little better indicator of future growth were up 29%. Now, why I like the company going forward for infrastructure is that they place such a critical role globally in infrastructure and infrastructure investment. Company's really well diversified across the globe, it's got a footprint in every major continent.

I like that management has been working on the theme of convergence. I touched on this before, the idea that you'll help a company work through its planning through to construction. What that means in software terms and this idea of convergence is that you're going to make one fluid piece of software that works for both the design and the make or the design in the manufacturing process, two very similar things.

Autodesk is the type of company that is almost like sleeper stock. I like to compare to, think of Adobe and Intuit two really visible brand names that don't get a lot of attention in the investment world, but tend to compound year after year after year. Over time, they provide not only double digit revenue growth, they provide double digit stock growth. That's what Autodesk has been doing. I think they're going to continue to do that.

I'm very fascinated by the investments the company is now making into specific verticals in infrastructure. A great example of that is a billion-dollar acquisition that the company made just early this year in February to acquire company that provides virtual water infrastructure modeling. This company's called Innovyze. Most of their growth has been organic, but over the past few years, they've started to acquire smaller companies. Yeah, they could be described as bolt-on acquisitions, but they're pretty strategic in nature. They're really trying to corner most of their competition.

Now, a big risk here is emerging competition from unlikely places. Unity Software, which is a company some of you growth-oriented investors will be familiar with, is also getting into this business because Unity has a strength in modeling and in AR and VR. Autodesk is upping its game by providing more software in AR and VR modeling. Here we have an upstart and not to make a pun on a company that others will invest in. But an upstart challenger, I should say, in Unity, which has potential to take some market share from Autodesk, but Autodesk does have a history of investing in its computer software. Its R&D spend is always pretty significant.

I think they're going to keep up and fend off these potential threats. They are also just really well integrated with the major architectural firms, major engineering firms around the globe. They've got a moat in that it's a high switching cost to leave Autodesk behind. I really like the forward opportunity. I think it's going to be one of the fastest-growing stocks on the list that we've got for you today. Not without risk, but again, this is the sleeper stock you can almost set and forget. They have had a couple of big-picture transitions. Maybe that's why Matt sold out his shares a few years ago. Those are behind him.

I'm going to keep my eye on this one. I think they'll benefit as more money in the U.S. flows toward infrastructure. But it's also a longer-term play around the globe because the U.S. is not the only developed country that needs renewed investment in infrastructure, and infrastructure investments in places like China, India, and other developing nations is only set to grow in the coming years.