3 Software Stocks That Could Go Parabolic

If you keep your finger on the pulse of the market, then you likely know that most technology stocks — including most software stocks — are now at record highs. Indeed, the rallies that got them there appear to have accelerated just within the past few weeks, pricing them out of reach for most investors. But not every software stock is riding this wave. A handful of them are lagging despite their obvious potential upside.

Instead of overthinking it, capitalize on this temporary weakness by stepping in before they “catch up” with their peers by going parabolic. Here’s a look at your best three bets right now.

1. Datadog (NASDAQ: DDOG)

There’s a good chance you’ve never heard of Datadog. Although its $40 billion market cap hardly qualifies it as a small cap, it also isn’t exactly big either. It’s a behind-the-scenes player with no consumer-facing product, yet Datadog has a ton of upside. The stock is currently down 37% from its late-2021 high and has been mostly stagnant since the beginning of this year.

Datadog offers observability products to enterprises managing large networks of servers, apps, and cloud-computing platforms. In simpler terms, it allows IT professionals to see and optimize the flow of digital data within complex networks. According to technology market research outfit Gartner, Datadog’s observability software is rated as one of this year’s best, second only to Dynatrace in terms of completeness and execution.

What’s particularly valuable in this age of cybersecurity threats is Datadog’s functionalities that enable real-time detection and response to cyberthreats. The numbers speak volumes: This year’s revenue is on pace to improve nearly 24% year over year, with an additional expected growth of 22% next year. More importantly, earnings are projected to rebound from this year’s profit of $1.65 per share to $1.95 per share next year. It’s fair to say that this stock isn’t cheap, which may explain why it’s been struggling since 2022. However, with its upward fiscal trajectory, its valuation concerns may become irrelevant in due time.

2. HubSpot (NYSE: HUBS)

It might seem unlikely that any customer-relationship management (CRM) software company could take on industry titan Salesforce, given its overwhelming market presence. But HubSpot has found a niche by focusing on specific needs, making it distinct yet competitive. Market research from HG Insights indicates that HubSpot has reached a close second place to Salesforce in market share, boasting around 25% fewer paying customers.

While Salesforce generates higher revenue, likely due to serving bigger corporate clients, analysts have recognized HubSpot’s strengths. Gartner considers it to be the world’s single-best CRM in terms of efficacy. This bodes well for HubSpot’s potential moving forward. Despite some underperformance since April, this year’s expected revenue growth of nearly 19% aligns perfectly with its historical growth trajectory, while earnings are on a quicker ascent.

3. Microsoft (NASDAQ: MSFT)

Finally, don’t forget about Microsoft, the timeless giant that’s already on many traders’ radars. This stock has been a surprisingly poor performer since July, failing to capitalize on the record highs of most of its tech peers. The primary reason stems from competitive concerns in the blossoming artificial intelligence (AI) space. Recent downgrades from firms like D.A. Davidson and Oppenheimer have cast a shadow over its premium valuation.

While it appears that Microsoft is losing its edge in AI, it’s important to note two overlooked truths about the company: (1) AI is just one aspect of Microsoft’s diverse revenue streams, and (2) its powerful brand can still attract consumers and corporations alike. Microsoft is not just a player in AI but also leads in the cloud computing space. Research from Synergy Research Group shows that Microsoft’s cloud business is growing faster than all others, even surpassing Amazon’s.

Ultimately, despite being a subpar performer recently, analysts maintain strong buy ratings on Microsoft. Over three-quarters of them still rate it as such, with a consensus price target of $497.04, nearly 20% above its current trading price. This makes Microsoft another solid stock to consider for those looking for parabolic gains.

So there you have it! Keep an eye on these three software stocks: Datadog, HubSpot, and Microsoft. While the market is bustling with tech stocks at record highs, these contenders are gaining momentum that could lead them to exciting breakout points. Don’t miss out on the opportunity to capitalize on their potential!