The software industry has firmly established itself as one of the most resilient and fastest-growing sectors in the global economy. As digital transformation continues to expand across various industries, businesses are increasingly relying on software solutions to enhance efficiency, support seamless growth, and foster innovation. The rising focus on automating workflows, improving customer experiences, and leveraging data-driven insights has sustained the high demand for software products.
What’s Driving Software Growth
Eric Compton, an equities strategist for Morningstar Research Services, underscored artificial intelligence and digital transformation as major drivers for growth in his Industry Outlook published on March 11. He projected consistent revenue and margin growth for the software sector, with total industry revenue anticipated to rise at an annual rate of 11% through 2029. Key factors supporting this growth include high customer retention due to switching costs, significant initial investments that translate into steady revenue streams, and sustained demand for digital transformation. Compton also identified AI adoption, increasing data requirements, and the shift to cloud-based solutions as central drivers for growth, while cautioning against potential challenges like higher interest rates, economic uncertainties, and regulatory issues.
The Morningstar strategist further emphasized that despite short-term fluctuations, the long-term demand for software remains strong, particularly in database software and customer experience applications, which are expected to grow at the fastest rate. Software companies gain an advantage from substantial upfront investments in R&D and customer acquisition, which lead to long-lasting, high-value client relationships. Compton also underlined the fact that most firms in the sector possess strong competitive advantages, or “moats,” primarily due to switching costs and network effects. Once a company adopts a software solution, shifting to a competitor is complex, ensuring a stable revenue stream. Although IT spending has normalized following the pandemic, ongoing automation, AI-driven advancements, and customer-oriented software solutions are expected to fuel sustained growth in the sector.
Opportunities in the Software Market
Recent performance in the global software industry has been marked by volatility. Jason Hunter, JP Morgan’s Head of Technical Strategy, shared insights in a January interview with CNBC, highlighting trends in the software and semiconductor sectors. He noted that while semiconductor stocks led market growth in 2024, the software sector gained momentum later in the year but underperformed in December. This pullback brought the valuation ratios of both large- and small-cap software stocks back to their breakout levels relative to semiconductors, offering a more favourable risk-reward scenario for software investments.
In conclusion, despite recent volatility and macroeconomic risks, the software sector remains an attractive space for investors due to its promising long-term outlook. Ongoing investments in cloud technology, AI, and digital transformation are expected to drive growth, with segments like database software, customer experience tools, and cybersecurity anticipated to expand at a faster pace. Companies that adapt to emerging technological trends, maintain strong customer retention, and use AI to drive innovation are likely to achieve the greatest success in the future.
With those insights in mind, let’s explore the 10 best software stocks to buy according to billionaires.
A close-up view of an AI-platform software code running on a monitor.
Our methodology
To determine the 10 best software stocks to buy according to billionaires, we shortlisted the top 10 enterprise and application software stocks most favoured by billionaire investors, leveraging Insider Monkey’s Q4 2024 database on billionaire holdings. We then arranged the shortlisted stocks in ascending order based on the number of billionaire investors holding stakes in each company as of Q4 2024. Additionally, we provided insights into hedge fund sentiment surrounding these stocks, using data from Insider Monkey’s Q4 2024 database of hedge funds.
Note: All pricing data is as of market close on March 14.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Best Software Stocks to Buy According to Billionaires
10. Workday Inc. (NASDAQ:WDAY)
Number of Billionaire Investors: 15
Billionaire Holdings: $1.7 Billion
Number of Hedge Fund Holders: 89
Workday Inc. (NASDAQ:WDAY) is a leading provider of enterprise cloud applications for finance and human resources. The company offers a suite of financial management, human capital management (HCM), and analytics applications designed to help organizations optimize their operations.
Workday Inc. (NASDAQ:WDAY) has seen tremendous growth in the last eight years with revenue surging from $1.6 billion in 2016 to $8.4 billion in 2024, reflecting a robust compounded annual growth rate (CAGR) of 23% over the period. Growth momentum should continue as the company still sees a total addressable market of $160 billion, and expects around 15% annual subscription revenue growth in FY 2026 and 2027, and to achieve an adjusted operating margin of 30% by 2027. With a growing customer base and strong retention rates, the company is poised for sustained growth as enterprises increasingly prioritize digital transformation.
BMO Capital analyst Daniel Jester recently increased Workday Inc. (NASDAQ:WDAY)’s price target from $300 to $314 while maintaining an Outperform rating. The company recently reported stronger-than-expected Q4 results which led the analyst to raise his estimates and thus the price target. In addition to the revision, he highlighted the company’s evolving AI-driven strategy, which leverages four key areas to enhance growth and efficiency. This approach provides management with multiple pathways for value creation, an aspect the analyst believes is not fully recognized by investors in current discussions.
9. Intuit Inc. (NASDAQ:INTU)
Number of Billionaire Investors: 15
Billionaire Holdings: $6.8 Billion
Number of Hedge Fund Holders: 89
Intuit Inc. (NASDAQ:INTU) is a leader in financial software solutions, catering to individuals as well as small and medium-sized businesses to help them manage their finances effectively. Its renowned products include TurboTax for tax filing, QuickBooks for accounting, and Credit Karma for credit monitoring. Additionally, Intuit is the owner of Mailchimp, a prominent email marketing platform.
According to its annual stockholder presentation, Intuit Inc. (NASDAQ:INTU) estimates that it has currently captured only 5% of its total addressable market, which is projected to expand to an impressive $326 billion. This growth potential is driven by core business expansion, ecosystem enhancements, and international market penetration. Looking ahead, the company recently confirmed its FY 2025 guidance, forecasting total revenue growth of 12%-13% and adjusted EPS growth of 13%-14%.
On March 7, Mizuho Securities analyst Siti Panigrahi reiterated a Buy rating on the stock, highlighting multiple positive factors. Chief among them were the consistent improvements in IRS tax-filing data and the anticipated benefits from late-season filings. The analyst further emphasized that the conclusion of TurboTax’s early-bird pricing is expected to increase the proportion of filings at higher average selling prices, boosting revenue. Moreover, the expanding adoption of TurboTax Live Full Service was identified as a crucial growth driver for Intuit in fiscal year 2025.
