Microsoft Is Wells Fargo's Top Software Pick for 2024 As Bank Cuts Salesforce, Others

Seeking Alpha2023-12-20

Wells Fargo published its outlook for the software space for 2024 on Wednesday, noting that the macro environment is stabilizing and there is "light at the end of [the] tunnel.And while the $2.7T ...

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Microsoft (MSFT) received the most mentions of being the recipient of an increase in spending.\"We view the stable-to-improving budget environment for software as broadly positive for the space next year, and expect highest quality [companies] continue to outperform,\" the research firm wrote.The firm also expects data and artificial intelligence to be a major focus, with Snowflake (NYSE: SNOW) and Braze (BRZE) as its top picks in the space.Also expected is a \"gradual\" rotation from investors back to into growth names, with Atlassian (TEAM) its top pick. Conversely, it downgraded Salesforce (NYSE: CRM) to equal weight on the basis of the sharp run up in shares this year, noting that much of the value from the margin expansion story has been \"captured.\"\"Despite still palatable valuation levels ([less than] 25x EV/CY25 FCF), our diligence suggests the next growth drivers are further off than expected, and we expect CRM shares to prove more range-bound in [2024],\" the analysts wrote.The firm also expects a \"selective bounce back\" in the small and mid-cap space in software.\"Regardless of if macro improves in '24, we're expecting some of these forgotten names [with company] specific catalysts and/or inexpensive valuations to stage a comeback, given potential for upside to estimates + favorably skewed risk/reward,\" the analysts wrote.Zoominfo Technologies (ZI) is its top pick and it upgraded both Guidewire Software (GWRE) and Blend Labs (BLND) to overweight from equal weight, respectively.The fifth and final theme is that companies that were boosted by the pandemic are \"still stuck\" and \"creative fixes [have] become necessary.\"\"While we've exercised patience with some of the pandemic 'winners', it's become clear over the course of the past yr that many are still struggling to find stable footing,\" the analysts wrote. \"Given lack of clear growth/margin strategy going fwd, we're expecting an uptick in activist/M&A interest in '24 aiming to address these challenged models, but aren't expecting substantive fixes in all cases.\"As such, the firm downgraded Zoom Video (NASDAQ: ZM) to underweight from equal weight; DocuSign (DOCU) to underweight from equal weight; RingCentral (RNG) to equal weight from overweight; Everbridge (EVBG) to underweight from equal weight; Clear Secure (YOU) to underweight from equal weight; and Kaltura (KLTR) to underweight from equal weight.Analysts are largely cautious on Salesforce (CRM). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates CRM a STRONG BUY.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":3,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1188196169"}