3 Software Stocks to Watch Closely in a Thriving Industry

Industry Overview - The Zacks Computer Software industry is positioned to benefit from global digital transformation, with a shift to cloud and SaaS models providing recurring revenue visibility and flexibility for users [1] - The industry is experiencing growth driven by the integration of AI and ML technologies into various applications [1] Market Trends - The global software market is projected to grow at a CAGR of 11.3% from 2025 to 2030, reaching $1,397.31 billion [2] - Increased spending on AI and cloud technologies is expected to enhance the industry's prospects, with a focus on automation, personalization, and predictive analytics [4] - Cloud computing is becoming a dominant force, with businesses adopting hybrid and multi-cloud environments for flexibility and scalability [5] - The demand for cybersecurity software is rising due to increased cyberattacks, leading to a focus on performance management monitoring tools [6] Macroeconomic Factors - Global macroeconomic weakness and supply chain volatility are concerns for the industry, with inflation potentially affecting spending among small and medium-sized businesses [7] - Worldwide IT spending is projected to reach $5.43 trillion in 2025, reflecting a 7.9% increase from 2024, which is lower than previous forecasts [7] Industry Performance - The Zacks Computer Software industry has underperformed compared to the broader Zacks Computer and Technology sector and the S&P 500 Index over the past year, gaining 18.2% compared to 18.8% and 30% respectively [11] Valuation Metrics - The industry is currently trading at a forward 12-month P/E ratio of 33.11X, higher than the S&P 500's 23.24X and the sector's 28.69X [14] Company Highlights - Manhattan Associates (MANH): Reported a 22% increase in cloud revenues for Q2 2025, with total revenues up 2.7% year over year. The Zacks Consensus Estimate for 2025 earnings is $4.81 per share, indicating 1.9% growth [18][20][19] - PTC Inc (PTC): Focused on AI strategy with positive customer feedback and a Zacks Consensus Estimate for fiscal 2025 earnings at $6.69 per share, indicating 31.7% growth [23][26] - Microsoft Corporation (MSFT): Achieved total revenue of $281.7 billion in fiscal 2025, with AI business revenue exceeding $13 billion, growing 175% year over year. The Zacks Consensus Estimate for fiscal 2026 earnings is $15.35 per share, indicating 12.5% growth [33][34]