In this article, we will take a look at the 7 Best Software Infrastructure Stocks To Invest In Now.
Technology drives nearly every facet of modern businesses, from individual tasks to overall operations, goods, and services. When integrated effectively, it enhances communication, boosts efficiency, and increases productivity. Both tech and non-tech companies rely on software infrastructure and solutions to keep their operations running smoothly. To that end, these companies invest heavily in servers, cloud migration, network monitoring and management, and communication tools—all crucial components of software infrastructure.
One of the largest segments of the software infrastructure market is the cloud infrastructure industry. As businesses increasingly adopt cloud solutions to reduce costs and enhance efficiency, the demand for these services continues to grow. According to Synergy Research Group, global enterprise spending on cloud infrastructure services reached $79 billion in the second quarter, marking a $14.1 billion or 22% increase from the same period in 2023. This represents the third consecutive quarter of substantial growth, with year-over-year increases exceeding 20%.
Specifically, Software-as-a-Service (SaaS) emerged as a rapidly growing segment within the cloud infrastructure industry. Leading companies like Salesforce offer powerful functionalities through subscription-based models delivered over the web. This approach provides lower upfront costs, easy deployment, and ongoing updates, making advanced tools accessible to businesses of all sizes. In the SaaS model, providers grant customers access to application software and databases via the cloud. In 2023, the global SaaS market generated around $197 billion in revenue, representing nearly two-thirds of the total public cloud services market. Although SaaS revenue is projected to keep growing, its share of the overall cloud services market may decrease as cloud platform and infrastructure services expand.
Meanwhile, IT leaders are turning to tech consolidation in response to global economic challenges like inflation, recession, and supply chain disruptions, as well as the need to reduce costs while modernizing IT infrastructure. Gartner predicted that global IT spending would reach around $5.26 trillion in 2024, an increase of 7.5% from 2023. However, rapid expansion in technology investments can lead to tech sprawl, with new tools often lacking compatibility. According to a report from Zylo, organizations have wasted an average of $18 million this year alone due to inefficient SaaS management.
On another front, cybersecurity emerged as a critical component of software infrastructure, with spending surging since the onset of the COVID-19 pandemic. As cloud computing and remote work have become integral to business operations, organizations have encountered new security challenges. According to the Identity Theft Resource Center, the number of data breaches reached an all-time high in 2023, increasing by 71% from the previous record set in 2021 and up 78% from a slight dip in 2022. Given these trends, it’s no surprise that global cybersecurity spending was expected to surpass $200 billion in 2023—an increase of approximately 12% from 2022.
Our Methodology
In this article, we used a stock screener to identify tech companies that provide various forms of software infrastructure and/or are actively engaged in the industry. From that list, we selected the top 7 companies with the highest number of hedge fund investors, according to Insider Monkey’s database of 912 hedge funds as of the end of Q2 2024.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 54
International Business Machines Corporation (NYSE:IBM) is a leading provider of Infrastructure as a Service (IaaS), offering consulting and deployment solutions for cloud infrastructure, storage, networking, and AI infrastructure, among other services.
Bernstein SocGen Group has reiterated its Market Perform rating on IBM, maintaining a price target of $185.00. The firm noted that IBM’s shares have surged 37% year-to-date, driven by increased confidence in the company’s turnaround and growth potential, especially looking toward fiscal year 2025. A key driver of IBM’s expected performance next year is the launch of a new mainframe, which has historically added 150-200 basis points to the company’s overall revenue growth.
Additionally, International Business Machines Corporation (NYSE:IBM) recently declared a regular quarterly cash dividend of $1.67 per share, underscoring its financial stability and commitment to shareholder returns. The company is also restructuring its workforce, reducing roles in some areas while expanding hiring in AI-focused positions.
According to the latest data from Insider Monkey, 54 hedge funds held stakes in IBM, up from 49 in the previous quarter. AQR Capital Management was the largest shareholder, with a $209.5 million position in the company.
6. Hewlett Packard Enterprise Company (NYSE:HPE)
Number of Hedge Fund Holders: 58
Hewlett Packard Enterprise Company (NYSE:HPE) provides data services globally through its diverse segments, including Compute, HPC & AI, Storage, Intelligent Edge, Financial Services, and Corporate Investments. The company offers also software-defined infrastructure (SDI) solutions to help businesses manage networking, storage, automation, and software development and deployment.
In the third quarter of fiscal year 2024, Hewlett Packard Enterprise Company (NYSE:HPE) reported a 10% year-over-year revenue increase, reaching $7.7 billion. AI system revenues saw a notable 40% growth from the previous quarter, totaling $1.3 billion. However, the Hybrid Cloud and Intelligent Edge segments experienced revenue declines of 7% and 23%, respectively.
Analysts at Barclays are optimistic about Hewlett Packard Enterprise Company’s prospects, especially in growing its AI server revenues and improving its storage business. On September 25, Barclays upgraded HPE’s rating from Equal-weight to Overweight, noting that the company, while taking a more cautious approach to its AI operations, is still accelerating orders and revenue in this area.
Insider Monkey’s second-quarter data reflects a positive sentiment among hedge funds, with 58 funds holding positions in HPE, compared to 49 in the previous quarter.
5. Cisco Systems Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 61
Cisco Systems Inc. (NASDAQ:CSCO) is a global leader in networking and IT solutions, leveraging AI to optimize network performance, enhance security, and automate IT operations. The company designs, manufactures, and sells networking hardware, software, telecommunications equipment, and other advanced technology products. In addition, the company provides servers, hyperconverged infrastructure, and SaaS-based cloud operations management tools for data centers.
In Q2 2024, the company experienced a 10.27% year-over-year revenue decline. However, Cisco Systems Inc. (NASDAQ:CSCO) is well-positioned for future growth due to strong demand for its networking products, fueled by the rise of cloud computing and the increasing need for cybersecurity. Its transition to a subscription-based model further bolsters its long-term growth prospects. The recent $28 billion acquisition of Splunk is expected to significantly enhance its cybersecurity capabilities and strengthen its position in data security and analytics.
HSBC recently upgraded Cisco Systems Inc. (NASDAQ:CSCO) to a Buy rating, raising its target price from $46 to $58. The upgrade was based on improving order flows, normalized inventories, and Cisco’s strategic focus on high-growth areas. HSBC praised the company’s cautious guidance for FY25, noting that while its recent fourth-quarter results met expectations, the guidance appeared conservative. Despite announcing a 7% workforce reduction this week, HSBC projects Cisco’s non-GAAP EPS to grow at a compound annual growth rate (CAGR) of 11.6% from 2024 to 2027, with double-digit growth anticipated in networking revenue throughout most of FY25.
As of the end of Q2 2024, 61 hedge funds tracked by Insider Monkey held stakes in Cisco Systems Inc. (NASDAQ:CSCO) worth $1.59 billion, up from 58 hedge funds in the previous quarter.
4. Palo Alto Networks Inc (NASDAQ:PANW)
Number of Hedge Fund Holders: 66
Palo Alto Networks, Inc. (NASDAQ:PANW) is a leading cybersecurity firm offering a range of solutions, including firewalls, malware protection, and cloud security.
TD Cowen recently reiterated its Buy rating on Palo Alto Networks, Inc. (NASDAQ:PANW) shares, setting a price target of $400. This endorsement came after discussions with Walter Pritchard, the company’s Senior Vice President of Investor Relations and Corporate Development. The firm believes that demand for cybersecurity remains strong and that Palo Alto Networks’ focus on its platform strategy will drive significant revenue growth. Simplifying the purchasing process is expected to accelerate the company’s ambitious goal of achieving $15 billion in Next-Generation Security (NGS) Annual Recurring Revenue (ARR) by 2030.
In a strategic move to enhance its cybersecurity offerings, Palo Alto Networks recently acquired IBM’s QRadar SaaS assets. This acquisition will allow QRadar customers to transition to Palo Alto Networks’ Cortex XSIAM platform, which leverages Precision AI to bolster security capabilities.
At the end of the second quarter, 66 hedge funds in Insider Monkey’s database held positions in Palo Alto Networks, Inc. (NASDAQ:PANW). Citadel Investment Group was the largest shareholder, owning 2.84 million shares in the company.
TimesSquare Capital Management U.S. Focus Growth Strategy stated the following regarding Palo Alto Networks, Inc. (NASDAQ:PANW) in its Q2 2024 investor letter:
“Our cybersecurity holdings were also beneficial to the strategy this quarter. The global provider of network and cloud-based cybersecurity systems, Palo Alto Networks, Inc. (NASDAQ:PANW), chipped in with a 19% return. Its revenues and earnings were higher than anticipated as Palo Alto shifted its marketing strategy to emphasize larger platform contracts.”
3. Oracle Corporation (NYSE:ORCL)
Number of Hedge Fund Holders: 93
Oracle Corporation (NYSE:ORCL) is a comprehensive provider of software infrastructure solutions, offering a wide range of services through its Oracle Cloud Infrastructure (OCI). The OCI delivers a full suite of cloud deployment services, including servers, storage, networking, applications, and more.
Oracle Corporation (NYSE:ORCL) has set an ambitious revenue target, aiming to surpass $66 billion in fiscal year 2026, reflecting a growth rate of over 12%. Looking further ahead, the company projects revenues to reach approximately $104 billion by fiscal year 2029, indicating a compound annual growth rate (CAGR) of around 16%, with earnings per share expected to grow at about 20% annually by FY29.
The company’s hyper-scale cloud business has been a key growth driver, as demonstrated by a 52% increase in its Remaining Performance Obligations (RPO). Oracle’s late entry into the cloud infrastructure market has been offset by the development of its second-generation cloud, enabling the company to deliver high-performance, scalable, and efficient cloud solutions.
On September 16, HSBC raised its price target for Oracle Corporation (NYSE:ORCL) from $180 to $210, maintaining a Buy rating. The upgrade is based on Oracle’s strong growth outlook, with revenues expected to surpass $66 billion in FY26 and $104 billion by FY29, up from $52.9 billion reported for FY24.
As of the second quarter of 2024, 93 hedge funds held positions in Oracle Corporation (NYSE:ORCL), with a total stake value of $5.4 billion. Fisher Asset Management, led by Ken Fisher, was the largest shareholder, owning 17.58 million shares worth $2.48 billion as of June 30.
2. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE), based in San Jose, California, is a leading software company offering a wide range of tools and services for students and creative professionals, including web design, digital art, and content creation.
The software company reported strong results for the second quarter of fiscal year 2024, exceeding expectations with non-GAAP earnings per share of $4.48, compared to the consensus estimate of $4.39. Moreover, revenue reached $5.31 billion, slightly above the expected $5.29 billion, representing a 10% increase year-over-year. The Digital Media segment grew by 11%, while the Digital Experience segment saw a 9% increase. A standout performance came from the net new Digital Media Annual Recurring Revenue, which reached $487 million, well above the company’s guidance of approximately $440 million.
Adobe Inc. (NASDAQ:ADBE) has been rapidly integrating AI capabilities into its product suite, now offering over 100 AI features across Creative Cloud, Document Cloud, and Experience Cloud. The company’s Firefly family of generative AI models is gaining traction, and the Express mobile app featuring Firefly has significantly boosted monthly active users.
In the second quarter, 107 hedge funds held stakes in Adobe Inc. (NASDAQ:ADBE)., with a combined value of $11.8 billion. Fisher Asset Management was the largest shareholder, with 4.76 million shares.
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a global technology leader known for its flagship software products, such as Windows and Office, and a significant player in cloud computing through its Microsoft Azure platform. Azure provides businesses with scalable IT solutions, facilitating seamless cloud adoption.
The Azure cloud platform remains a focal point for investors and analysts. Despite recent capacity constraints affecting growth, there is optimism for a rebound in the latter half of 2024. D.A. Davidson highlighted Microsoft’s substantial investments in AI computing infrastructure, specifically in building GPU clusters to meet the increasing demand for AI applications. BMO Capital Markets also reiterated an Outperform rating on Microsoft Corporation (NASDAQ:MSFT) with a $500 price target, emphasizing the company’s leadership in AI and its comprehensive portfolio. The firm anticipates Azure’s growth to accelerate in the second half of FY25, following the September quarter’s approximately 29% year-over-year growth guidance.
In fiscal Q4 2024, Microsoft Corporation (NASDAQ:MSFT) reported revenue of $64.7 billion, a 15% increase year-over-year, with net income rising 10% to $22 billion. This growth is largely driven by Microsoft Azure, which continues to benefit from AI integrations. With a 31% market share, Azure is well-positioned to capitalize on the strong demand for cloud solutions.
Microsoft Corporation (NASDAQ:MSFT) ranks as the top choice among the best software infrastructure stocks to buy, with 279 hedge funds holding positions in the company as of the June 2024 quarter.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares contributed to performance after the company reported strong fiscal third quarter results, underscoring its leadership position in the cloud and highlighted its role as a primary facilitator and beneficiary of AI adoption. Company revenue growth, operating margin, and earnings growth surpassed consensus expectations. The utility scale Azure cloud business grew 31% in constant currency of which 7% was AI related versus 3% two quarters ago. Further, management noted most of the AI revenue continues to stem from inference rather than training indicating high quality AI applications by Microsoft’s clients. Management also indicated that the significant cost-cutting programs in corporate America are done, suggesting that the cost optimization headwinds previously impacting Azure’s growth are over. Separately, management provided color on their new AI-productivity tool, Copilot, noting that approximately 60% of Fortune 500 companies are already using Copilot, and that the quarter witnessed a 50% increase in Copilot assistance integration within Teams. We continue to believe that Microsoft has the potential to hold a leading position in AI, given its innovative approach and demonstrated high unit volume growth opportunity.”
While we believe in MSFT’s potential, we believe that certain AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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