15 Best Software Stocks to Buy Now According to Coatue Management

Published on December 29, 2023 at 6:41 pm by Swati Goyal in Hedge Funds, News

In this piece, we will take a look at the 15 best software stocks to buy now according to Coatue Management’s 13F portfolio. If you want to skip our overview of Coatue Management’s 13F portfolio, then you can take a look at the 5 Best Software Stocks to Buy Now.

Thanks to the digital transformation gaining traction in almost every corner, the world is slowly becoming a global village. A shift to cloud-based solutions, automation of various sectors, and adoption of digital products are some of the transformations taking shape. Amid the ever-growing demand for digital transformation and widespread adoption of cloud solutions, the software industry is on a roll.

The software has become an integral part of technological innovation as it runs devices and applications and is used in managing infrastructure. Enterprises are increasingly shifting from traditional software applications to cloud-based software solutions as they look to take advantage of the benefits in play. The software market is projected to expand in the coming years due to the increased demand for software solutions for enhancing operations in the banking, retail, and healthcare sectors.

As global enterprises prioritize enhancing digital capabilities with smart software solutions powered by artificial intelligence to streamline operations, software companies continue to record booming business. The result has been some of the best software stocks to buy now, according to Coatue Management, while taking advantage of the software revolution.

The race to automate and streamline operations is also fuelling the integration of generative artificial intelligence into various software applications as a shift from traditional software applications heats up. While Goldman Sachs estimates the total addressable market of the generative AI software to be $150 billion, global IT spending is projected to reach $5.07 trillion next year. It will mark an 8% increase from 2023 levels.

Spending on software is expected to rise 12.9% next year to about $916 billion. That said, now may be the best time to eye investment opportunities in the sector. Software companies’ products and solutions will always provide vital functions for cybersecurity, design, tools, and base functionality for manufacturing.

After experiencing double-digit losses in 2022, software stocks rebounded in 2023, outperforming the overall market. The SPDR S&P Software & Services ETF (XSW), which tracks the performance of some of the biggest software companies, is already up by more than 38% for the year, beating the 21% gain of the S&P 500.

The outperformance came at the back of the Federal Reserve hiking interest rates of 5.25% and 5.50%. The increase sent shockwaves in the technology sector as it tends to trigger increased borrowing costs and interest expense on loans. Software companies are some of the most capital-intensive, as they have to raise capital in the debt market to sustain their research development and innovation activities.

Nevertheless, the software sector shrugging off the high-interest rates to rally underscores the strong demand for software solutions. In addition, the FED indicating rate cuts next year might be the catalyst to propel the software sector to new heights.

On the other hand, software stocks are affected by a range of factors not limited to trade policies, regulations, and fluctuating supply and demand. Therefore, while investing in such stocks, it’s essential first to analyse a company’s financial health, its edge in the sector, leadership team and market position.

While it can be challenging to know which software stocks are likely to outperform by 2024, the Coatue Management portfolio should provide valuable insights. Founded in 1999 by billionaire investor Philippe Laffont, the hedge fund is best known for its tech-focused long positions that transcend the software sector.

Laffont has established himself as one of the most successful hedge fund managers by focusing on technology-themed investment strategies. Technology stocks account for about 60% of the Coatue Management portfolio, which has allowed Laffont to profit from some of the fastest-growing companies and market leaders in various sectors.

15 Best Software Stocks to Buy Now According to Coatue Management's 13F Portfolio

Philippe Laffont of Coatue Management

A word of advice from the billionaire investor is that everyone eyeing exposure in the equity market should strive to invest in companies that would be relevant in the next five to ten years. Some of the best software stocks to buy now according to Coatue Management are at the heart of the digital revolution that’s already taking shape.

“The most interesting trend is that technology, which used to be mostly software and semiconductors and obscure things, it’s coming everywhere, it’s the future of cars and the future of transportation and every sector,” Laffont said at the Forbes and Shook Research Top Advisors Summit in Las Vegas.

Coatue Management’s portfolio has made significant gains thanks to its exposure to some of the most prominent software plays benefiting from the artificial intelligence boom.

The software industry boasts huge growth potential as companies invest in the space and embrace various digital platforms. Growing demand for cloud and cybersecurity solutions affirms the sector’s long-term prospects.

Our Methodology

The impressive rally recorded among software stocks is expected to continue in 2024 at the back of a booming economy and accommodative monetary policy. Consequently, we have analyzed 13F fillings and settled on the best software stocks to buy now, according to Coatue Management, based on underlying fundamentals. We also obtained insights into the perspectives of 910 hedge funds in our database regarding each stock by the conclusion of Q3 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.

Best Software Stocks to Buy Now According to Coatue Management’s 13F Portfolio

15. Agora, Inc. (NASDAQ:API)

Number of Hedge Fund Holders: 9

Coatue Management’s Equity Stake: $2.27 Million

Agora, Inc. (NASDAQ:API) is a tech company specializing in real-time engagement platforms, offering developers software tools for embedding voice, video, live-streaming, chat, whiteboard, and AI functionalities. The company sells software-based platforms as a service, focusing strategically on the Chinese and US markets due to significant digital adoption in these regions.

While Agora, Inc. (NASDAQ:API)’s down by 30% for the year, it is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio. Philippe Laffont’s Coatue Management is the leading stakeholder of the company. The hedge fund has been buying and selling shares in Agora, Inc. (NASDAQ:API) since Q4 2022 and held stakes worth $2.27 million in Q3 2023.

According to Insider Monkey’s data, 9 hedge funds were long Agora, Inc. (NASDAQ:API) at the end of Q3 2023, down from 12 funds in the last quarter.

14. Bitdeer Technologies Group (NASDAQ:BTDR)

Number of Hedge Fund Holders: 2

Coatue Management’s Equity Stake: $4.31 Million

Bitdeer Technologies Group (NASDAQ: BTDR) is a technology firm providing software solutions to the cryptocurrency mining industry. Bitdeer Technologies Group (NASDAQ:BTDR)’s solution handles various processes involving mining, transport logistics and mining data center design.

Bitdeer Technologies Group (NASDAQ:BTDR) has exploded in recent weeks in the aftermath of reports the Securities and Exchange Commission will approve a Bitcoin Exchange Traded Fund. The move is expected to legitimize the sector, attracting more institutional investors.

Bitdeer Technologies Group (NASDAQ:BTDR) is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio. The hedge fund held stakes worth $4.31 million in Bitdeer Technologies Group (NASDAQ:BTDR) as of the end of Q3 2023. 2 of the 910 hedge funds part of Insider Monkey’s database had invested in the firm as of Q3 2023.

13. RingCentral, Inc. (NYSE:RNG)

Number of Hedge Fund Holders: 28

Coatue Management’s Equity Stake: $12.19 Million

RingCentral, Inc. (NYSE:RNG) is a company flexing its muscle in the burgeoning cloud computing landscape. RingCentral, Inc. (NYSE:RNG) offers cloud communications video meetings and contract centre software as service solutions worldwide.

The cloud communication company delivered impressive Q2 results, with topline sales growing 11%, affirming underlying growth. RingCentral, Inc. (NYSE:RNG) is moving again despite taking a hit on founder and long-time CEO Vlad Shmunis’s stepping down. Coatue Management held stakes worth $12.19 million in RingCentral, Inc. (NYSE:RNG) as of the end of Q3 2023.

From the 910 hedge funds portfolios of Insider Monkey for the third quarter of this year, 28 had a stake in RingCentral, Inc. (NYSE:RNG), compared to 37 in the previous quarter. Sylebra Capital Management was the biggest shareholder of RingCentral, Inc. (NYSE:RNG), with 8.2 million shares valued at $242.46 million.

12. Palantir Technologies Inc. (NYSE:PLTR)

Number of Hedge Fund Holders: 31

Coatue Management’s Equity Stake: $14.30 Million

Palantir Technologies Inc. (NYSE:PLTR) is one of the best software stocks to buy now according to Coatue Management, as it builds and deploys software platforms for use in the intelligence community. Palantir Technologies Inc. (NYSE:PLTR) offers software for data analysis.

While its biggest customers are governmental agencies, Palantir Technologies Inc. (NYSE:PLTR) stands to benefit greatly from a tumultuous geopolitical environment. Increased demand for intelligence service for military and defense agencies affirms its prospects. Palantir Technologies Inc. (NYSE:PLTR) has gained about 160% year to date. Coatue Management opened a new position worth $14.30 million in the stock in Q3 2023.

At the conclusion of Q3 2023, Palantir Technologies Inc. (NYSE: PLTR) was held by 31 hedge funds in Insider Monkey’s database. The most substantial stake, valued at $387.84 million, was owned by D E Shaw.

11. HashiCorp, Inc. (NASDAQ:HCP)

Number of Hedge Fund Holders: 29

Coatue Management’s Equity Stake: $16.38 Million

HashiCorp, Inc. (NASDAQ:HCP) is a cloud infrastructure automation company offering Terraform, an infrastructure provisioning product with an Infrastructure-as-Code approach. HashiCorp, Inc. (NASDAQ:HCP) also provides Consul, an application-centric networking automation product that enables practitioners to manage application traffic.

While HashiCorp, Inc. (NASDAQ:HCP) is down by 14% for the year, it has started showing signs of bouncing back after delivering impressive Q3 results that topped analysts’ expectations. A booming global economy continues to fuel strong demand for automation software for enterprise technology infrastructure. Coatue Management reduced its stake in HashiCorp, Inc. (NASDAQ:HCP) by 29% in Q3 2023 to $16.38 million.

29 of the 910 hedge funds part of Insider Monkey’s database had bought HashiCorp, Inc. (NASDAQ:HCP)’s shares in Q3 2023. Israel Englander’s Millennium Management is the largest investor in HashiCorp, Inc. (NASDAQ:HCP), with shares worth $57.16 million.

10. Block, Inc. (NYSE:SQ)

Number of Hedge Fund Holders: 60

Coatue Management’s Equity Stake: $36.88 Million

Block Inc. (NYSE:SQ) is a technology company that builds and sells tools that help people assess the economy. Its solutions are designed to make commerce and financial services easy and accessible for sellers in integrated ecosystems.

Shares of Block Inc. (NYSE:SQ) are up by 22% for the year, affirming why it is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio. The rally has come on the back of solid Q3 financial results that beat analysts’ estimates and showed strong growth in Block Inc.’s (NYSE:SQ) Cash App and Square revenue. Coatue Management held stakes worth $36.88 million in the stock in Q3 2023, having been buying and selling since 2019.

At the end of Q3 2023, Block, Inc. (NYSE:SQ) had shareholders among 60 out of the 910 hedge funds examined by Insider Monkey. Viking Global, led by Andreas Halvorsen, emerged as the largest investor, holding 12.3 million shares valued at $545 million.

Here is what Baron FinTech Fund said about Block, Inc. (NYSE:SQ) in its Q3 2023 investor letter:

“Block, Inc. provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares fell due to a confluence of factors, including slowing growth, a brief system outage, and the departure of a key executive who ran the Square business segment. Ongoing investor concerns over consumer spending and a recession did not help sentiment. Nevertheless, Block reported strong quarterly results with 27% gross profit growth and adjusted EBITDA more than doubling. We believe Block’s businesses are resilient, and greater management focus on cost discipline should drive further margin expansion. We continue to own the stock due to Block’s long runway for growth, durable competitive advantages, and track record of innovation.”

9. AppLovin Corporation (NYSE:APP)

Number of Hedge Fund Holders: 33

Coatue Management’s Equity Stake: $46.09 Million

AppLovin Corporation (NYSE:APP) is a publishing and monetization company that offers a software-based platform for mobile app developers to enhance marketing. Its flagship product is AppDiscovery, a marketing software solution that matches advertiser demand with publisher supply through auctions.

AppLovin Corporation (NYSE:APP)’s solutions are in high demand as they help discover and monetize apps. It has also launched the artificial intelligence software Axon 2.0, credited with profitable solid growth in Q3. AppLovin Corporation (NYSE:APP) is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio, going by the 300% rally in 2023. The hedge fund held stakes worth $46.09 million in AppLovin Corporation (NYSE:APP) as of Q3 2023.

According to Insider Monkey’s third-quarter database, 33 hedge funds were bullish on AppLovin Corporation (NASDAQ:APP), down from 34 in the previous quarter. Rajiv Jain’s GQG Partners held the largest position in the company, with 26.08 million shares worth $1.04 billion.

8. C3.ai, Inc. (NYSE:AI)

Number of Hedge Fund Holders: 24

Coatue Management’s Equity Stake: $57.77 Million

C3.ai, Inc. (NYSE: AI) is an enterprise artificial intelligence company that delivers a C3 AI platform enabling individuals to design, develop, and deploy enterprise AI applications. C3.ai, Inc. (NYSE:AI) has over 40 artificial intelligence-powered applications that help businesses and banks fight fraud. Its solutions are also used in the oil and gas industry, allowing companies to monitor pieces of equipment to avert failures.

C3.ai, Inc. (NYSE:AI) has rallied by about 160% year to date, affirming growing investor interest buoyed by its growth metrics and long-term prospects. Coatue Management increased its stake in C3.ai, Inc. (NYSE:AI) by 54% in Q3 2023 to $57.77 million.

As of the end of the third quarter of 2023, 24 hedge funds tracked by Insider Monkey had stakes in C3.ai, Inc. (NYSE:AI). The most significant stakeholder of C3.ai, Inc. (NYSE:AI) during this period was Philippe Laffont’s Coatue Management.

Here is what Kerrisdale Capital said about C3.ai, Inc. (NYSE:AI) in its investor letter:

“We are short shares of C3.ai, Inc. (NYSE:AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.

This isn’t the first time C3 has sought to ride a hot investment theme. The company was originally founded as C3 Energy to develop analytics solutions for public utilities preparing for the emergence of cap-and-trade and smart grids. C3 pivoted in 2016, renaming the company C3 IoT to capitalize on that buzzy opportunity. But management’s master stroke was rebranding operations as C3.ai in 2019 and going public with the “AI” stock ticker, thus securing its place as the default artificial intelligence stock play for the undiscriminating investor despite the bulk of its business coming from relatively dated analytics models built for a very small number of utility, energy, and government customers. C3 is a minor, cash-burning consulting and services business masquerading as a software company, and its true value is a fraction of its current market capitalization…” (Click here to read the full text)

7. UiPath Inc. (NYSE:PATH)

Number of Hedge Fund Holders: 30

Coatue Management’s Equity Stake: $59.37 Million

UiPath Inc. (NYSE:PATH) is an enterprise software company that provides end-to-end automation platforms for various robotic process automation solutions. UiPath Inc. (NYSE:PATH) offers a suite of interrelated software to build, manage, run and govern automation within organizations.

Shares of the workplace automation software company have more than doubled in 2023 as solid financial results continue to strengthen investor sentiments. UiPath Inc. (NYSE:PATH) also benefits from strong demand for its AI-powered products. It is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio. The hedge fund held stakes worth $59.37 million as of the end of Q3 2023.

In the third quarter of 2023, 30 out of the 910 hedge funds surveyed by Insider Monkey had invested in the company. UiPath Inc. (NYSE:PATH)’s largest hedge fund shareholder in Q3 2023 was ARK Investment Management, which owned 47.33 million shares worth $809.75 million.

6. CrowdStrike Holdings, Inc. (NASDAQ:CRWD)

Number of Hedge Fund Holders: 69

Coatue Management’s Equity Stake: $79.88 Million

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a company that provides cloud-delivered protection across endpoints and cloud workloads identity and data. The integration of artificial intelligence has allowed the company to offer much sought-after cybersecurity solutions. The integration has also propelled CrowdStrike Holdings, Inc. (NASDAQ:CRWD) to become the second-largest cybersecurity company.

Shares of CrowdStrike Holdings, Inc. (NASDAQ:CRWD) are already up by more than 140%, signalling why it is one of the best software stocks to buy now according to Coatue Management’s 13F portfolio. CrowdStrike Holdings, Inc. (NASDAQ:CRWD) has already delivered record annual recurring revenue and became the first-ever cybersecurity firm to surpass $3 billion in annual recurring revenue. Coatue Management held stakes worth $79.88 million in the company as of the end of Q3 2023.

CrowdStrike Holdings, Inc. (NASDAQ:CRWD) had the support of 69 hedge funds in Q3 2023 out of 910 hedge funds surveyed by Insider Monkey, up from 65 in the previous quarter. The firm’s prominent investor was Two Sigma Advisors, a hedge fund led by John Overdeck and David Siegel, which owned 1.13 million shares valued at $189.12 million.

Here is what Carillon Eagle Mid Cap Growth Fund said about CrowdStrike Holdings, Inc. (NASDAQ:CRWD) in its Q3 2023 investor letter:

“CrowdStrike Holdings, Inc. (NASDAQ:CRWD), a provider of cyber security software solutions, delivered positive quarterly results and forward guidance above expectations. Large deal momentum was driven by cloud security, identity protection, and security software management. Other positive developments include an improved profitability profile and ramping reseller partnerships.”

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