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 VTEX (NYSE:VTEX) 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 high-quality exterior shot of a business complex with several enterprise brands and retailers.
VTEX (NYSE:VTEX)
Stock Price: $6.10
Number of Hedge Fund Holders: 11
Analyst Upside Potential: 55.74%
VTEX (NYSE:VTEX) is a cloud-based software company that offers one-stop software solutions for online retailers. The company not only provides a software-as-a-service e-commerce platform that allows companies to create and manage online stores but also enables omnichannel retailing, as businesses can sell through various channels using its platform.
One of the key features that differentiate the platform is its marketplace offering which allows retailers to build their online marketplaces where multiple sellers can offer products. The company operates in over 43 countries and supports more than 3,500 active online stores. It has established itself as a leader in the digital commerce space, particularly in Latin America, and continues to expand its global presence.
VTEX (NYSE:VTEX) has made notable advancements in its financial performance and strategic positioning, particularly regarding its Rule of 40 metric, which combines revenue growth and profitability. The company achieved a Rule of 40 score of 32% in fiscal Q3 2024, an improvement from 28% in the same period last year. This metric is significant as it indicates a healthy balance between growth and profitability, essential for SaaS companies. During the third quarter, the company grew its subscription revenue by 22%, whereas gross profits rose by 28%, achieving a margin of 74%. Management remains optimistic to reach the 40% target, as discussed during their investor day last year, suggesting that they are on track to enhance both their revenue growth and profit margins in the coming quarters. It is one of the 12 best software stocks to buy according to analysts.
Overall VTEX ranks 10th on our list of the best software stocks to buy according to analysts. While we acknowledge the potential of VTEX 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 VTEX 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.
