close
close

3 Strong Buy Software Stocks to Keep an Eye on

The technology-heavy Nasdaq 100 (NDX) strong start to the year (up 21% year-to-date) was led by AI technology high-flyers. Unless you focus too heavily on the leading semiconductor companies, your portfolio is likely to lag far behind the Nasdaq 100. In fact, it's difficult to beat the market. In any case, there's no reason to chase semiconductor stocks after a euphoric run-up – not while there are Strong Buy-rated, cheaply valued software stocks that have what it takes to move higher.

So let’s use TipRanks’ comparison tool to evaluate three Strong Buy-rated software names – INTU, SNPS, MDB – that may still be overlooked.

Intuit (NASDAQ:INTU)

It didn't take long for shares of financial software company Intuit to recover from their rapid correction in May. In the last month alone, INTU stock has gained more than 14% as investors reinvested in a stock that may have a chance to boost prices by offering more value. In fact, accounting and bookkeeping seem to be a suitable career for artificial intelligence (AI). And as Intuit refines its AI arsenal, it's hard to be less than optimistic.

Last month, Intuit acquired some technology and assets from insurance technology company Zendrive. In fact, Intuit may be better known for its QuickBooks and Turbotax software, not insurance. But what you may not know is that Credit Karma (owned by Intuit) has entered the auto insurance business through Karma Drive.

With Zendrive's technology and talent on board, Karma Drive may have what it takes to take its insurance foray to the next level by leveraging the value of telematics and data analytics. Come for the credit score, stay for the great deals on credit cards, loans and now auto insurance. Investors seem to have taken a positive view of the Zendrive deal, with shares now flirting with 52-week highs again.

As Intuit becomes more of a data and AI-driven company that is confident enough to expand into new markets (such as insurance) rather than just being a financial software developer, the 60.3x price-to-earnings (P/E) ratio may be justified.

What is the price target of INTU shares?

According to analysts, INTU stock is a strong buy, with 19 buys and two hold recommendations issued over the past three months. The average price target for INTU stock of $733.28 implies an upside potential of 11.1%.

Synopsys (NASDAQ:SNPS)

Shares of chip design software maker Synopsys are approaching new highs again after a 20% rise since their April 2024 low. All it took was a strong second-quarter earnings beat for bulls to return to a name that stands to benefit greatly from the AI-driven semiconductor boom. Despite the higher multiple, I tend to remain bullish on SNPS stock as its growth prospects appear to have improved significantly following its recent acquisition.

Looking ahead, Synopsys plans to complete its $35 billion acquisition of engineering simulation software developer Ansys in the first half of next year. The move will strengthen the company's silicon-to-system design solution and help Synopsys become a more influential promoter of new technological innovations. In fact, having simulation and chip design under one hood could help companies reduce costs and risks when tackling complex, cutting-edge engineering projects.

The deal is not a sure thing, however, not after Chinese antitrust authorities investigated the implications of a Synopsys-Ansys deal. Ansys shares (NASDAQ:ANSS) have fallen by around 10% since the deal was announced in December 2023 due to uncertainty as to whether the deal will fall through.

Be that as it may, Synopsys is already playing chess while others play checkers. With an impressive Synopsys.ai suite of tools and analytics solutions that harness the full power of data, the hefty P/E ratio of 65.8 (far higher than the infrastructure software industry average of 42.2) may be worth the buy.

What is the price target for SNPS shares?

According to analysts, SNPS stock is a strong buy, with 10 buys issued in the last three months. The average price target of SNPS stock of $651.70 implies an upside potential of 7.7%.

MongoDB (NASDAQ:MDB)

Shares of database software company MongoDB have been under a lot of pressure this year. They are now down 47% from their 52-week high and have fallen by around 35% since the beginning of the year. Some well-known analysts still see value in the stock after the recent slump. Despite the difficult quarters and lower forecasts that have contributed to the MDB share price slide, I remain optimistic about MDB shares.

MongoDB isn't the only enterprise software company to see its share price slip as the Nasdaq 100 hits new highs, but it could be one of the first companies to make up for lost time as industry conditions normalize.

Last week, analysts at Citi (NYSE:C) praised MDB stock as one of its two top picks in the enterprise software scene. Citi highlighted several catalysts that could help MongoDB and other struggling enterprise software companies emerge from their crisis. Most notably, Citi sees the recovery in IT spending, lower interest rates and seasonal factors as reasons to choose MDB stock now.

In fact, corporate budget cuts have hit hard starting in 2022. Recently, companies may be prioritizing AI hardware spending over software spending, but once the hardware is in place, it may be time to start investing in software again to take advantage of those shiny, new AI accelerators.

In particular, MongoDB's AI Applications Program (MAAP) stands out as an intriguing generative AI platform for the enterprise. With backing from big names in AI like Anthropic and some of the top seven public cloud giants, investors may be underestimating the company's ability to capitalize on the catalysts outlined by Citi.

What is the price target for MDB shares?

According to analysts, MDB stock is a strong buy, with 20 buys and four hold recommendations issued over the past three months. The average price target for MDB stock of $335.95 implies an upside potential of 26.8%.

Diploma

AI-enabled software companies may be in the shadow of semiconductor companies right now. Only time will tell if the euphoric earnings will shift to the software space in the second half of the year. Regardless, Wall Street's enthusiasm for each stock is hard to ignore. Of the three names, Wall Street sees the most upside potential in MDB shares (26.8%).

Notice