Despite several challenges, including geopolitical issues, inflation, and labor shortages, global spending on software is expected to grow at a 10.3% CAGR from 2021 to 2023. This is mainly driven by the cloud and enterprise applications market growth.

Over the years, the software industry has become a stalwart of digital transformation. Revenue in the software market is projected to reach $593.40 billion in 2022. Moreover, revenue is expected to show an annual growth rate of 6.5% during 2022-2027, resulting in a market volume of $812.90 billion by 2027.

Given this backdrop, fundamentally strong software stocks Microsoft Corporation (MSFT) and GoDaddy Inc. (GDDY) might be solid buys now.

Microsoft Corporation (MSFT)

MSFT is a tech behemoth that develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.

On August 9, MSFT and Barclays PLC (BCS) announced that BCS had deployed Microsoft Teams as its preferred collaboration platform. This plan included enhancing the data retention, search, and retrieval capabilities available with MSFT to meet BCS’ needs. The collaboration should benefit the company.

In July, Oracle Corporation (ORCL) and MSFT announced the general availability of Oracle Database Service for Microsoft Azure. The partnership is expected to provide greater customer choice and flexibility as they transform to cloud technology.

MSFT’s total revenue increased 12.4% year-over-year to $51.87 billion in the fourth quarter that ended June 30. Its net cash from operations grew 8.5% from the year-ago value to $24.63 billion, while its net income improved 1.7% year-over-year to $16.74 billion. The company’s net earnings per common share increased 2.8% from its year-ago value to $2.23.

The consensus EPS estimate of $2.32 for the first fiscal quarter ending September 2022 indicates a 2.2% improvement year-over-year. The consensus revenue is expected to rise 10.1% year-over-year to $49.89 billion for the same quarter. Additionally, MSFT has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.

The stock has gained 3.3% over the past five days and 2.3% intraday to close its last trading session at $264.46.

MSFT’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MSFT is rated a B in Stability, Sentiment, and Quality. Within the Software - Business industry, it is ranked #9 out of 54 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for MSFT, click here.

GoDaddy Inc. (GDDY)

GDDY engages in the design and development of cloud-based technology products internationally. The company offers a domain name registration product that engages customers at the initial stage of establishing a digital identity.

On June 13, GDDY announced that the company's Venture Forward research initiative had partnered with mySidewalk to launch an online tool to give U.S. local and regional policymakers unprecedented access to information on the economic impact of over 20 million microbusinesses.

Jeremy Hartman, Vice President, Community Engagement at GDDY, said, “Working with mySidewalk, we’re able to bring our data to a larger set of people to show just how great of an impact microbusinesses have on their communities.”

GDDY’s total revenue came in at $1.02 billion for the second quarter of 2022 ended June 30, representing a 9% year-over-year growth. Its operating income grew 41.6% from the prior-year quarter to $124.60 million, while its net income rose 93% from the same quarter last year to $90.50 million. The EPS increased 107.4% from the prior-year quarter to $0.56.

Analysts expect GDDY’s revenue for the fiscal year ending December 2022 to be $4.12 billion, indicating a 7.9% year-over-year growth. The company’s EPS for the same year is expected to increase 5.1% from the prior year to $3.09.

GDDY has gained 10.3% over the past three months and 2.4% intraday to close its last trading session at $78.05.

It is no surprise that GDDY has an overall B rating, which translates to Buy in our POWR Ratings system. GDDY has a B grade for Sentiment. It is ranked #8 in the same industry.

Beyond what we’ve stated above, we have also given GDDY grades for Growth, Value, Momentum, Stability, and Quality. Get all GDDY ratings here.

MSFT shares rose $0.95 (+0.36%) in premarket trading Monday. Year-to-date, MSFT has declined -20.85%, versus a -13.76% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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