We recently compiled a list of the 12 Best Software Stocks to Buy According to Analysts. In this article, we are going to take a look at where MongoDB, Inc. (NASDAQ:MDB) stands against the other software stocks.
Software Industry Update
According to the MCF Corporate Finance Q4 2024 software update report, software company valuations have reached unprecedented heights due to the AI boom, especially with innovations surrounding GenAI. Investors are increasingly viewing strong AI roadmaps as essential for revenue and margin expansion, leading to heightened interest in software companies that integrate advanced AI capabilities into their offerings. According to the report, software companies are trading at 6.2x the Current median EV / NTM revenue estimate.
As highlighted by the report, another key reason for increased valuations has been the high adoption rate of GenAI. The enterprise-level usage of GenAI almost doubled year-over-year in 2024 and around 65% of the enterprises now use the technology. The report noted that organizations have now transitioned from the pilot testing phase to full-scale GenAI implementations, enhancing workflows and customer experiences while unlocking new revenue streams. Moreover, the investment and funding for GenAI-based software companies also increased sharply. According to the report GenAI raised around $56 billion in funding in 2024, driven by a $10 billion round of DataBricks, a $6.6 billion round by OpenAI, and a $4 billion round of Anthropic. Not only this, GenAI also claimed more than 40% of the total AI funding across the United States, Europe, and Israel.
Talking about how AI has started to play in the favor of software, Jeff Richards, managing partner at Notable Capital appeared on a CNBC interview a month ago. He noted that AI is actively working for the software sector, indicating that the technology is not just a prospect but is already being utilized effectively in various applications within the industry. Richards highlighted that the development of AI which started with semiconductor chips, then moved to data centers and servers is now in the software development stage where software application companies are in high demand to integrate AI applications in various industries. Similar to the findings by the MCF corporate finance report, Richards also highlighted that venture capital funds have been heavily funding software startups for the past two to three years to ensure the effective application of GenAI, which we are witnessing right now.
Our Methodology
To curate the list of the 12 best software stocks to buy according to analysts, we used the Finviz stock screener and CNN. Using the screener we first aggregated a list of software stocks with analyst upside potential of more than 50%. Next, we cross-checked the analyst upside potential for each stock using CNN. Lastly, we ranked these stocks in ascending order of analysts’ upside potential. We have also added the number of hedge funds holding each stock, sourced from Insider Monkey’s third-quarter hedge funds database. Please note that the data was recorded on January 16, 2025.
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).
A software engineer hosting a remote video training session on a multi-cloud database-as-a-service solution.
MongoDB, Inc. (NASDAQ:MDB)
Stock Price: $242.91
Number of Hedge Fund Holders: 49
Analyst Upside Potential: 64.67%
MongoDB, Inc. (NASDAQ:MDB) is a software company that provides a developer platform that helps developers manage and work with data effectively. In addition to an integrated suite of databases and services for various application needs, the company also provides MongoDB Atlas, a cloud-based service that allows users to store and manage data across multiple cloud providers like AWS, Google Cloud, and Azure.
The company is focusing on expanding its enterprise customer base, recognizing this segment offers the strongest returns. Management plans to enhance its strategic account program and educate developers in large enterprises to maximize the use of MongoDB’s capabilities. MongoDB, Inc. (NASDAQ:MDB) is also working on modernizing its legacy applications using AI technologies, which can significantly reduce costs and risks associated with migration.
During the fiscal third quarter of 2024, the company generated $529 million in revenue, marking a 22% increase compared to the same quarter last year and exceeding management’s expectations. Its MongoDB Atlas cloud service database was a major contributor accounting for 68% of the total revenue and grew 26% year-over-year. It is one of the best software stocks to buy according to analysts.
Fidelity Growth Strategies Fund stated the following regarding MongoDB, Inc. (NASDAQ:MDB) in its Q2 2024 investor letter:
“An underweight in software & services firm MongoDB, Inc. (NASDAQ:MDB) (-30%) was the next-largest contributor to the fund’s result versus the benchmark. The company’s shares fell sharply in May, after it reported disappointing Q1 results and reduced full-year guidance for its cloud storage platform, MongoDB Atlas.”
Overall MDB ranks 8th on our list of the best software stocks to buy according to analysts. While we acknowledge the potential of MDB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MDB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
