The software-as-a-service (SaaS) space continues to be in turmoil lately over fears of disruption from artificial intelligence (AI). However, these fears look overblown.
Let's look at five software stocks to buy now.
Image source: Getty Images.
AppLovin
Although AppLovin (APP 6.30%) has been one of the biggest AI winners, it hasn't been spared from the recent software stock sell-off. The stock price is up 71% over the past year, but it currently trades nearly 22% below its 52-week high.
The sell-off doesn't make a lot of sense given the rapid revenue growth being generated by the launch of its AI-powered Axon-2 adtech platform. This segment of the business grew 68% year over year last quarter, which helped expand gross margins and surge profitability.
AppLovin management is now looking to expand the platform beyond its core mobile gaming market and launch a self-serve ad manager, both of which should be growth catalysts.
NASDAQ: APP
Key Data Points
Salesforce
As AI becomes mainstream, Salesforce (CRM 2.75%) is looking to become a leader in agentic AI. The company has made some smart moves to establish itself in this emerging field. First, it launched Data Cloud (now Data 360), which can source data from cloud computing providers and database warehouses, and then it acquired master data management company Informatica. This allows Salesforce to become the master record of an organization's data from which its AI agents can draw information and perform accordingly.
The moves being made should significantly reduce AI hallucinations, making Salesforce a prime agentic AI solution. The stock is trading down about 28% over the past year, in part due to investor concerns about slowing core growth and increased competition. That drop also means the stock is cheap, trading at a forward price-to-sales (P/S) multiple of below 5 and a forward price-to-earnings (P/E) ratio of 18.
Workday
In the age of AI, clean, organized data is becoming increasingly important, and Workday (WDAY 3.04%) has the "largest and cleanest" human resource and finance database in the world, according to its management. This is important, and it positions the company to continue to be a vital player in the software space.
Workday is also introducing AI agents and tools to help customers in the areas of finance, legal, and human resources, and recently acquired a company called Paradox, whose AI solution makes the hiring process easier. The company is growing its subscription revenue in the mid-teens, and it has a ton of cash on its balance sheet.
Workday stock is trading down almost 24% over the past year, but that also means the stock is cheap, trading at a forward P/S ratio of below 5 times and a forward P/E of 18.
NASDAQ: WDAY
Key Data Points
GitLab
GitLab (GTLB 1.75%), which operates a DevSecOps (development, security, and operations) platform that enables customers to securely develop software, has seen its stock struggle (down about 45% over the past year) as investors worry that AI will lead to fewer coders, potentially negatively impacting its business.
That hasn't shown up thus far, with the company consistently growing its revenue by 25% or more, led by an increasing enterprise customer count and seat expansion from existing customers. The launch of its Duo Agent solution, which can help developers write code and perform other daily tasks, and a new hybrid seat-plus-usage-based pricing model could both be growth catalysts. Meanwhile, the stock is also cheap, trading at a forward P/S multiple of under 5.5 times.
UiPath
After a strong rally in late November, UiPath's (PATH 3.04%) stock has also gotten caught up in the software sell-off and is trading down about 24% from its 52-week high. However, the company has a huge opportunity in front of it as it transitions to become an AI orchestration platform.
NYSE: PATH
Key Data Points
With companies like Salesforce, Workday, and others all having their own AI agents, organizations are going to need a way to manage all of them. That is where UiPath steps in with its Maestro platform. The company has taken the governance and compliance framework from its robot process automation (RPA) solution and created a platform that can manage both AI agents and software bots.
As AI agents become more widespread, this is going to become an ever-increasing opportunity. At the same time, the platform can assign tasks to both AI agents and UiPath software bots, which are cheaper and can handle simple tasks like data entry. The stock is also attractively valued, with a forward P/S multiple of below 5 times and a forward P/E around 20 times.
