In the world of Big Tech, the buzz this year has continued to center on Nvidia Corp., with its leading position providing graphics processing units that are used by data centers to support the development of generative artificial intelligence. But software stocks have surged in the second half of the year, and many software companies have been putting up strong numbers.
Shares of Palantir Technologies Inc. PLTR have quadrupled so far in 2024, outperforming even Nvidia’s NVDA 193% total return with dividends reinvested. Palantir sells software to governments and companies, and its artificial-intelligence offering has seen particular momentum in recent quarters.
Analysts predict that Palantir’s revenue for 2024 could come in at $4.22 billion, for an increase of 26% from 2023. The analysts expect similar sales growth in 2025, but as you can see in the second table below, they also believe that investors have pushed the company’s stock way too high.
Read: Palantir’s fiery stock surge has been polarizing. Here’s what the CEO thinks.
We screened the 27 software companies in the S&P 500 SPX, as categorized by FactSet, for expected revenue growth in calendar 2025. The estimates are adjusted for calendar years for companies (such as Microsoft Corp. MSFT) whose fiscal reporting periods don’t match the calendar.
Here are the 10 software companies in the S&P 500 expected to grow sales the most next year, based on consensus estimates among analysts working for brokerage firms polled by FactSet:
|
Company |
Ticker |
Expected sales growth in 2025 |
Est. 2025 sales ($mil) |
Est. 2024 sales ($mil) |
Est. 2025 EPS |
Est. 2024 EPS |
|
Take-Two Interactive Software Inc. |
TTWO |
36.1% |
$7,563 |
$5,557 |
$6.25 |
$2.28 |
|
Palantir Technologies Inc. |
PLTR |
25.0% |
$3,513 |
$2,810 |
$0.47 |
$0.38 |
|
CrowdStrike Holdings Inc. Class A |
CRWD |
21.9% |
$4,683 |
$3,842 |
$4.30 |
$3.69 |
|
ServiceNow Inc. |
NOW |
20.5% |
$13,245 |
$10,987 |
$16.60 |
$13.90 |
|
Fair Isaac Corp. |
FICO |
16.3% |
$2,084 |
$1,792 |
$31.43 |
$25.24 |
|
Palo Alto Networks Inc. |
PANW |
14.6% |
$9,752 |
$8,507 |
$6.73 |
$5.96 |
|
Microsoft Corp. |
MSFT |
13.8% |
$298,610 |
$262,337 |
$14.11 |
$12.47 |
|
Cadence Design Systems Inc. |
CDNS |
13.2% |
$5,247 |
$4,634 |
$6.84 |
$5.92 |
|
Autodesk Inc. |
ADSK |
12.4% |
$6,822 |
$6,071 |
$9.17 |
$8.27 |
|
Dayforce Inc. |
DAY |
12.2% |
$1,964 |
$1,750 |
$2.22 |
$1.83 |
Palantir ranks second for expected revenue growth in calendar 2025, behind Take-Two Interactive Software TTWO, the parent company of Rockstar Games.
Rockstar is the developer of the “Grand Theft Auto” franchise. To the right on the table you can see that analysts expect to see a lofty increase in earnings per share for Take-Two next year following the anticipated release of “Grand Theft Auto VI.” But Rockstar hasn’t said much about the timing of the much-anticipated game since putting out a trailer last December.
In a note to clients in October, MoffettNathanson analyst Clay Griffin wrote that he was impressed with the trailer, but added that it was “hard to see how estimates for GTA go meaningfully higher from here.” He suggested that investors look upon any announcement of a further delay for the “Grand Theft Auto IV” release as a buying opportunity for Take-Two’s stock. For now, he has a neutral rating on Take-Two.
Analysts are also upbeat about the sales-growth potential of cybersecurity companies heading into next year, with CrowdStrike Holdings Inc. CRWD and Palo Alto Networks Inc. PANW both ranking within the top 10 by expected growth.
Both of those cybersecurity stocks have pointed narratives. CrowdStrike made headlines for the wrong reasons this summer when a bad software upgrade triggered a massive technology outage. But with analysts predicting nearly 22% sales growth next calendar year, the company’s business should continue to hum along. “Concerns about a significant acceleration in customer churn were firmly disproven” in the latest quarter, Evercore ISI analyst Peter Levine wrote recently.
Meanwhile, Palo Alto Networks has bet on succeeding with its “platformization” strategy, through which the company is giving away some product to customers for free in order to spur greater paid adoption of its broader suite down the road.
“We continue to see [Palo Alto Networks’] platform strategy taking root” and driving a pickup in market share, Jefferies analyst Joseph Gallo wrote Thursday.
A look at analyst ratings
For Palantir, the next table illustrates how even analysts working for brokerage firms (known as sell-side analysts) can shy away from a stock when investors are exuberant.
Leaving the software companies in the same order, here is a summary of the analysts’ opinions about the stocks:
|
Company |
Ticker |
Share buy ratings |
Share neutral ratings |
Share sell ratings |
Dec. 4 price |
Cons. Price target |
Implied 12-month upside potential |
|
Take-Two Interactive Software Inc. |
TTWO |
79% |
21% |
0% |
$188.20 |
$192.53 |
2% |
|
Palantir Technologies Inc. |
PLTR |
15% |
50% |
35% |
$69.85 |
$39.69 |
-43% |
|
CrowdStrike Holdings Inc. Class A |
CRWD |
76% |
20% |
4% |
$364.16 |
$378.72 |
4% |
|
ServiceNow Inc. |
NOW |
83% |
12% |
5% |
$1,123.13 |
$1,029.43 |
-8% |
|
Fair Isaac Corp. |
FICO |
50% |
28% |
22% |
$2,375.83 |
$2,160.80 |
-9% |
|
Palo Alto Networks Inc. |
PANW |
74% |
22% |
4% |
$404.58 |
$418.58 |
3% |
|
Microsoft Corp. |
MSFT |
95% |
5% |
0% |
$437.42 |
$501.48 |
15% |
|
Cadence Design Systems Inc. |
CDNS |
71% |
24% |
5% |
$324.54 |
$318.00 |
-2% |
|
Autodesk Inc. |
ADSK |
56% |
44% |
0% |
$304.23 |
$325.76 |
7% |
|
Dayforce Inc. |
DAY |
57% |
43% |
0% |
$80.71 |
$83.50 |
3% |
Click the tickers for more information.
Read: Tomi Kilgore’s guide to the wealth of information available for free on the MarketWatch quote page
It is fair to say that even though eight of the 10 stocks have majority buy or equivalent ratings, most are considered to be fairly priced according to the 12-month price targets. Four of the stocks were priced above the targets as of Wednesday’s close. And Palantir stood out, not only with a price target 43% below the consensus price target, but with 35% sell or equivalent ratings.
Among the S&P 500, there are no stocks with majority sell ratings. This might be because an analyst will typically believe that any negative information about a company is already baked into the share price.
For Palantir, having such a high level of sell ratings might reflect analysts’ belief that investors have gotten carried away with the company’s success.
Among the S&P 500, only four companies have higher percentages of sell or equivalent ratings than Palantir does, among analysts polled by FactSet.
Meanwhile, Microsoft’s stock is almost universally beloved. Microsoft is “winning the cloud and AI war,” HSBC’s Stephen Bersey wrote last month.
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