Software Stock Strength: 3 Names to Buy Now

While investors certainly have to pay up for quality software stocks, it’s hard to deny that these companies could have the most growth potential in the market. The sector took a hit earlier this year after fears that hot inflation numbers would cause interest rates to increase, but it’s clear that high-growth tech names are back in favor at this time. Valuations for many of these companies are at a premium, but with trends like the digital transformation of businesses, a growing need for cybersecurity, and fascinating advances in Artificial Intelligence and Machine Learning, it’s hard to argue against adding exposure to the software space.

Now that we have major earnings out of the way for many of the biggest companies in tech, new market leaders are beginning to emerge. Several software stocks are showing relative strength at this time and could be poised to outperform in this quarter and beyond. That’s why we’ve created a brief overview of 3 attractive names in the sector to buy now. Let’s take a deeper look below.

HubSpot (NYSE:HUBS)

In the business world, success is driven by building and maintaining relationships. That’s why a rapidly growing company like HubSpot should be on your radar, as its customer relationship management software helps small and mid-sized businesses attract people to their websites, convert those visitors into leads, and keep customers happy so that they become promoters of their businesses. The company’s freemium business model enables businesses to use free tools and then expand to more advanced features via upgrades and cross-selling, which is certainly an intriguing approach that has led to strong growth.

Investors should be quite pleased to see that HubSpot is maintaining its accelerating growth in 2021, and the company’s latest earnings results sent the stock to new all-time highs. For Q2, HubSpot reported total revenue of $310.8 million, up 54% year-over-year, and grew its total customers to 121,048, up 40% year-over-year. The company is quickly emerging as a leader in CRM software and if the updated forward guidance and strong earnings are any indications, the stock has plenty of room to run going forward.

DataDog (NASDAQ:DDOG)

With so many companies opting to take on digital transformations and cloud migrations following the pandemic, it makes sense to look at software companies that help to ensure things are running smoothly during those transitions. DataDog provides a monitoring and analytics platform for developers, information technology operations teams, and business users working in the cloud. Its SaaS platform provides very helpful insights into things like IT infrastructure, application performance, and more, so it's easy to recognize why DataDog is a software stock to consider owning for the long term.

DataDog is seeing sharp top-line growth at the moment and just reported Q2 revenue of $233.5 million, up 67% year-over-year and 18% quarter-over-quarter. Perhaps the most impressive number from the company’s latest earnings release was the increase in customers with an Annual Recurring Revenue of $100,000 or more, which grew by 59% year-over-year. This confirms the company is attracting larger customers to its cutting-edge platform. Finally, the fact that the company launched the Datadog Cloud Security Platform last quarter, which helps organizations to use a single platform for security insights and monitoring data, is another strong reason to consider adding shares.

ZoomInfo Technologies (NASDAQ:ZI)

Whenever a stock breaks out of its post-IPO base, it can really reward investors that are paying attention. That’s the case with this software company that operates a cloud-based go-to-market intelligence platform for sales and marketing teams all over the world. The platform uses artificial intelligence and machine learning techniques to convert raw data into actionable insights. We know how important marketing is for businesses in the digital age, and the fact that ZoomInfo’s platform can be used in almost any industry should be very attractive to prospective investors.

The company had a big Q2, with revenue of $174 million, up 57% year-over-year, and cash flow from operating activities of $88.6 million, up 250% year-over-year. ZoomInfo has also been making some intriguing acquisitions, including Conversion Intelligence platform Chorus.ai and conversational marketing platform Insent.ai which continue to improve the company’s offerings. With a quarter that delivered the highest levels for retention activity and customer engagement to date for ZoomInfo, it’s clear that this company is getting things right with its platform.