Summary of the Conference Call on US Software Industry Outlook for 2026 Industry Overview - The conference call focuses on the US Software industry, particularly the impact of AI on budgets and spending trends for 2026 [1][3][5]. Key Insights and Arguments 1. **Budget Growth and IT Spending**: - The 4Q25 CIO Survey indicates a significant acceleration in IT budget growth, with expectations of a +3.3% increase over the next 12 months, up from +1.9% in the previous quarter [3][18]. - There is a strong likelihood of a budget flush at the end of 2025, which is expected to positively impact companies like ServiceNow (NOW) and HubSpot (HUBS) [18][11]. 2. **AI Demand and Capacity**: - Demand for AI capabilities is anticipated to outpace current capacity, with a focus on scaling AI solutions within enterprises [5][23]. - The year 2025 was characterized by experimentation with AI, and 2026 is expected to see significant expansion in use cases that deliver high ROI [5][23]. 3. **Company Ratings and Growth Drivers**: - Zoom (ZM) and Palantir (PLTR) have been upgraded to Buy ratings due to improved growth visibility and strong catalysts [6][8]. - ZM is projected to achieve over 5% top-line growth, driven by its Contact Center and Custom AI Companion, while PLTR is expected to see a +51% year-over-year revenue growth, primarily from the US Commercial sector and government spending [8][9]. 4. **Market Dynamics and Risks**: - Despite the positive outlook for AI, there are ongoing concerns regarding the terminal value of application software, which may continue to pressure valuations [4][29]. - The software market is experiencing significant disruption risks from AI, particularly affecting traditional application vendors [29]. 5. **Investment Priorities**: - Data Analytics, Generative AI, and Data Warehousing have become the top investment priorities, reflecting the shift towards AI-driven solutions [18][26]. - Companies like Snowflake (SNOW), MongoDB (MDB), Microsoft (MSFT), and Oracle (ORCL) are favored for their AI capabilities and consumption models [26]. Additional Important Points - **Performance Metrics**: - The performance of various software companies in 2025 showed significant disparities, with PLTR achieving 147% sales growth, while others like HubSpot (HUBS) faced a decline of 43% [12][46]. - The overall sentiment indicates that while some companies are positioned well for growth, others are struggling with multiple compression and lower growth expectations [45][47]. - **Future Expectations**: - The environment for 2026 is expected to remain volatile, with a focus on growth in value, cyclical, and small/mid-cap names [30]. - Anticipated rate cuts in 2026 may positively impact software investments, particularly in AI, due to lower borrowing costs [34]. This summary encapsulates the key themes and insights from the conference call, highlighting the evolving landscape of the US Software industry as it adapts to AI advancements and changing budget dynamics.

Core Insights - Zoom Communications (ZM) shares are trading at a significant discount with a forward 12-month Price/Earnings ratio of 14.82X compared to the Zacks Internet - Software industry's 40.19X, indicating potential undervaluation [1] - The company has transformed from a pandemic-era video conferencing tool into a broader workplace collaboration platform, including unified communications, contact center solutions, and AI-powered productivity tools [1] - Despite diversification into hybrid work solutions, Zoom continues to trade at a discount compared to peers like Microsoft, Cisco, and Alphabet [1] Valuation and Performance - Zoom shares have returned 5.7% Year to Date (YTD), while the Zacks Internet - Software industry and the Zacks Computer and Technology sector have returned 24.1% and 20.3%, respectively [3] - At a forward P/E of 14.82X, ZM appears undervalued as enterprise, AI, and global growth gain momentum [6] - Technical indicators suggest potential momentum shifts, with shares trading above both their 50-day and 200-day simple moving averages [8] Revenue Growth and Business Momentum - In Q2 of fiscal 2026, Zoom's total revenues reached $1.22 billion, representing 4.7% year-over-year growth, with enterprise revenues rising 7% [12] - Customers contributing over $100,000 in trailing 12-month revenues grew 8.7% to 4,274, indicating steady upmarket traction [12] - The Zacks Consensus Estimate for Q3 fiscal 20265 revenues is $1.21 billion, indicating 2.99% growth year over year [13] AI Integration and Product Diversification - The strategic implementation of AI capabilities has led to a significant increase in AI Companion monthly active users, growing over 4X year over year [14] - Zoom's expansion into contact center and unified communications markets has shown strong growth, with Contact Center customers with over $100,000 annual recurring revenue growing 94% year over year [15] - Employee experience solutions through Workvivo have also shown strong momentum, with customers generating over $100,000 in annual recurring revenues reaching 168, up 142% year over year [16] Conclusion - Zoom Communications represents a compelling investment opportunity at current valuation levels, supported by attractive metrics, accelerating business fundamentals, and successful product diversification [17] - The company currently holds a Zacks Rank 1 (Strong Buy), suggesting that investors should consider accumulating the stock [18]

Zoom Communications Q2 FY26 Earnings August 21, 2025 © 2025 Zoom Communications, Inc. Use of non-GAAP financial measures In addition to the financials presented in accordance with U.S. generally accepted accounting principles ("GAAP"), this presentation includes the following non-GAAP metrics: Revenue in Constant Currency, non-GAAP gross profit, non-GAAP gross margin, non-GAAP R&D expense, non-GAAP S&M expense, non-GAAP G&A expense, non-GAAP operating margin, non-GAAP income from operations, non-GAAP net in ...

Financial Performance - Total revenue reached $1,175 million, a 3% year-over-year increase[31] - Enterprise revenue grew by 6% year-over-year[26] - The number of customers contributing over $100,000 in TTM (trailing twelve months) revenue increased by 8% year-over-year[30] - TTM net dollar expansion rate for enterprise customers was 98%[30] - Non-GAAP operating income was $467326 thousand, resulting in a non-GAAP operating margin of 398%[31,42] - Free cash flow was $463 million, representing a free cash flow margin of 394%[35] Customer and Product Growth - Revenue Accelerator licenses increased by 72% year-over-year[16] - Workvivo total customers increased by 106% year-over-year[18] - CC (Customer Care) customers increased by 65% year-over-year, with ZVA (Zoom Virtual Agent) achieving its largest deal to date[21] Future Outlook - The company projects Q2 FY26 revenue to be between $1,195 million and $1,200 million and the full fiscal year 2026 revenue to be between $4,800 million and $4,810 million[36] - Non-GAAP EPS is projected to be between $136 and $137 for Q2 FY26 and between $556 and $559 for the full fiscal year 2026[36]