lcva2/iStock Editorial via Getty Images
Microsoft (NASDAQ:MSFT), Workday (NASDAQ:WDAY) and ServiceNow (NYSE:NOW) were listed among Wells Fargo’s top enterprise software stocks for 2023, citing multiple themes that the aforementioned group is likely to keep benefiting from.
Analyst Michael Turrin noted that the early part of 2023 is likely to be similar to 2022, with volatility and investor negativity prevalent. However, companies that continue to show growth – especially those with low valuations – are best poised to navigate the current environment and benefit investors.
“For 2023, we recommend sticking with large cap platforms + those businesses with more defensive profiles early on, but ultimately expect the pendulum will swing back toward growth + SMID throughout the course of the year,” Turrin wrote in a note to clients.
Microsoft, Workday: Turrin noted Microsoft (MSFT) and Workday (WDAY) are platforms that have strong management teams and have shown the ability to increase customer spending given their advantages of reach and scale.
“We’re expecting a renewed effort from the large-caps to pick the low-hanging fruit — i.e., work to add value for existing customers by offering discounts, bundles, and other merchandising mechanisms to ultimately centralize spend toward these vendors,” Turrin wrote.
He added that companies that have these advantages could also boost acquisitions to help gain market share and customer spending.
Confluent: Confluent (NASDAQ:CFLT) is the best positioned company to benefit from the shift to the cloud for software infrastructure, Turrin said.
Categories including next-generation data, such as NoSQL databases, event streaming, data lakehouses, pipelines and more, as well as areas such as automation and artificial intelligence should continue to emerge.
“We expect as these solutions continue to see the maturation of digital transformation initiatives (primarily existing/ongoing, but also possibly net new during 2023), the associated vendors will likely see ongoing adoption and pronounced tailwinds over the coming year,” Turrin added.
Hubspot: Hubspot (HUBS) looked poised to be the best small and mid-cap stock in 2023 assuming investors focus more on growth stocks in the second-half of the year, as comparisons ease and foreign exchange headwinds slowdown.
“Ultimately, we think the uncertainty around [first-half] setups is also creating opportunity for more patient investors via more favorable entry points towards a select group of high-quality, long-term focused [companies] poised for improvement,” Turrin explained.
ServiceNow: ServiceNow (NOW) is the best positioned company for the last theme, companies that are focused on profitability, efficiency and shareholder value.
“As the macro weighs on top line growth across software, those companies who are quicker to drive margin expansion and demonstrate focus on shareholder value have been rewarded of late, and we expect this trend to continue into 2023,” Turrin added.
On Wednesday, UBS downgraded Microsoft (MSFT), citing worries over its cloud business.
