From " pain trade" to partying like it's 2022, it's been quite a week for software stocks.
After a brutal earnings-fueled selloff of software stocks on Thursday, quarterly financial reports were behind some massive gains across the sector.
Atlassian surged 30% after the collaborative software developer posted better-than-expected results for the fiscal fourth quarter and issued solid guidance. JFrog rose 5.1% and Twilio advanced 31% after both software companies also reported better-than-expected results.
Not to be outdone, Cloudflare advanced 6.5% after the cloud platform raised its full-year outlook following double-digit revenue growth for the second quarter.
Jordan Klein, managing director at Mizuho Securities, wrote Friday that software names were making gains like it was 2022 and that the whole day felt like an "old fashioned party."
Klein, who in late July warned that many stocks weren't trading on fundamentals, wrote that fundamentals appear to be beginning "to matter" once more.
To this point, Klein wrote that software stocks don't seem to be selling off simply on AI-related headlines.
"On the contrary, we are seeing clear AI winners in software where revenue growth is accelerating," Klein noted. "We need more breadth than just a few infrastructure software names and security stocks."
That appeared to be what's underway Friday with the strong moves from Atlassian, Twilio, JFrog, and Cloudflare.
Of the lot, Atlassian was the clear standout, according to Klein.
"This would be my game changer stock of the day and key name to watch," he wrote. "I think this 30%+ rally gets chased."
"Do not miss TEAM," he added.
Klein believes software is turning the corner. Now, it's up to the market.
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