As businesses and individuals rely more on software for daily activities, the industry is expected to continue its upward trajectory, driving innovation and economic growth. So, let us delve into three hot software stocks, Blackbaud, Inc. (BLKB), Microsoft Corporation (MSFT), and VMware, Inc. (VMW), that are currently generating significant investor confidence.

The software business industry has seen a remarkable rise in recent years, emerging as a dominant force in the global economy. Moreover, the increasing digitization of businesses and society has created a high demand for software solutions.

Additionally, cloud computing has revolutionized how software is delivered and accessed. As organizations increasingly embrace and integrate cloud services into their operations, there is a growing reliance on the cloud as a critical component of modern business practices.

As per Gartner, global spending on public cloud services is projected to rise 20.4% next year. This upward trajectory mirrors the trends observed this year, a combination of both cloud vendor price hikes and a surge in usage and adoption of these services.

Furthermore, emerging technologies such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT) create new opportunities for innovative software development. These technologies are being integrated into various sectors, including healthcare, finance, and manufacturing, further propelling the software industry's growth.

The global software market is projected to grow from $645.60 billion this year to $1.59 trillion by 2032 at a CAGR of 11.9%.

Considering these conducive trends, let's look at the fundamentals of the three best Software – Business stocks, starting with number 3.

Stock #3: Blackbaud, Inc. (BLKB)

BLKB operates as a cloud software solutions provider to non-profits, foundations, companies, education and healthcare institutions, and other social good entities internationally.

On October 23, 2023, BLKB introduced innovations at its annual technology conference, bbcon. The event highlighted advancements in connected systems, incorporating AI into products through "Intelligence for Good" and expanding the software ecosystem.

bbcon 2023, held in Denver, features keynotes from notable figures, networking opportunities, and social impact initiatives, serving as a hub for industry professionals to discuss trends and inspire change.

On October 11, BLKB announced that the company was intensifying its focus on peer-to-peer (P2P) fundraising by enhancing its Good Move mobile app, turning it into a robust participant center for Blackbaud TeamRaiser®. This development aims to streamline the P2P fundraising experience, allowing mobile app usage in fundraising events not centered around activity tracking.

This evolution aligns with Blackbaud's commitment to empowering organizations and individuals to make a difference in the philanthropic landscape.

BLKB’s total revenue for the fiscal second quarter ended June 30, 2023, increased 2.3% year-over-year to $271.04 million. Its non-GAAP gross profit increased 7.1% year-over-year to $166.90 million. The company’s non-GAAP income from operations increased 36.1% year-over-year to $74.14 million.

The company’s non-GAAP net income grew 35.2% year-over-year to $52.60 million and EPS increased 30.7% year-over-year to $0.98.

Analysts expect BLKB’s EPS and revenue for the quarter that ended September 30, 2023, to increase 38.8% and 5.4% year-over-year to $0.96 and $275.45 million. It surpassed the consensus EPS estimates in each of the four trailing quarters, which is remarkable.

Over the past year, the stock has gained 24.5% to close the last trading session at $65.30. It soared 10.9% year-to-date.

BLKB’s POWR Ratings reflect this promising outlook. 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.

It has a B grade for Growth, Stability, and Sentiment. It is ranked #14 among the 46 stocks in the B-rated Software – Business industry.

Click here to see BLKB’s Value, Momentum, and Quality ratings.

Stock #2: Microsoft Corporation (MSFT)

MSFT develops and supports software, services, devices and solutions worldwide. The company’s segments include Productivity and Business Processes; Intelligent Cloud segment; and More Personal Computing.

On October 30, MSFT announced its planned Xbox Game Studios Game Camp Asia, a two-month event spanning from February 20 to April 19th, 2024, aimed at recognizing and celebrating game creators across five diverse countries and regions.

The gaming industry in Asia is poised for substantial growth, with increasing interest from Asian youth and significant revenue generation, particularly in India and Indonesia. Game Camp Asia offers presentations, mentorship sessions, and opportunities for game developers to pitch their creations, part of Xbox's initiative to empower global creators in the gaming industry.

On October 26, MSFT and Submittable, a leading grants management and corporate social responsibility (CSR) platform, formed a strategic partnership to leverage Microsoft Azure and Azure OpenAI Service in developing new solutions for grants management and corporate social responsibility (CSR).

Submittable's offerings will include AI-powered tools, such as auto-filling grant applications, creating multilingual application forms, extracting information from official documents, streamlining processes and reducing errors. The collaboration seeks to address longstanding technology gaps in the sector.

With an 18-year consecutive dividend growth record, MSFT pays an annual dividend of $3, which translates to a yield of 0.91% on the current market price. Its four-year average dividend yield is 0.93%. Moreover, the company has raised its dividend at a CAGR of 10.1% over the past three years.

MSFT’s total revenue for the fiscal 2024 first quarter that ended September 30, 2023, increased 12.8% year-over-year to $56.52 billion. Its operating income rose 25% year-over-year to $26.90 billion. Moreover, the company’s net income and EPS rose 27% and 27.2% year-over-year to $22.29 billion and $2.99.

For the fiscal second quarter ending December 2023, MSFT’s EPS and revenue are expected to increase 19.6% and 15.8% year-over-year to $2.78 and $61.09 million. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past year, the stock has returned 45.5% to close the last trading session at $329.81. It gained 37.5% year-to-date.

MSFT’s strong 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 an A grade for Sentiment and a B for Stability and Quality. It is ranked #9 in the same industry.

Beyond what we stated above, we also have given MSFT grades for Growth, Value, and Momentum. Get all the MSFT ratings here.

Stock #1: VMware, Inc. (VMW)

VMW provides diverse software solutions globally, spanning modern applications, cloud management, networking, security, and workspaces. Its offerings encompass multi-cloud solutions, networking solutions like NSX, security solutions with Carbon Black, and workspace solutions, including Workspace ONE.

On October 23, VMW announced that it had made VMware Cross-Cloud services accessible to customers through the Oracle Cloud Marketplace, enabling VMware customers to utilize Oracle Cloud Infrastructure (OCI) with these services.

This collaboration allows for more efficient migration and operation of applications on OCI, facilitating faster innovation and enhanced resiliency.

VMW’s total revenue for the fiscal second quarter that ended August 4, 2023, increased 2.2% year-over-year to $3.41 billion. Its non-GAAP operating income increased 1.2% year-over-year to $977 million. The company’s non-GAAP net income increased 13.6% year-over-year to $792 million and non-GAAP EPS rose 11.6% year-over-year to $1.83.

Street expects VMW’s EPS and revenue for the quarter ending October 31, 2023, to increase 16% and 6.3% year-over-year to $1.70 and $3.41 billion, respectively.

VMW’s shares have soared 28.4% over the past year and 15.8% year-to-date to close the last trading session at $142.20.

VMW’s POWR Ratings reflect robust prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Quality and a B for Sentiment. It is ranked #3 in the same industry.

To see VMW’s Growth, Value, Momentum, and Stability ratings, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MSFT shares were trading at $336.12 per share on Monday morning, up $6.31 (+1.91%). Year-to-date, MSFT has gained 41.11%, versus a 9.42% 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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