If the software industry was thriving before the pandemic, the accelerating digital transformation of the business world that has occurred over the last year was the tipping point that sent software companies to entirely new levels of success.
There were plenty of software stock winners in 2020 that provided outstanding returns, but now investors are gaining insight into which companies are still in heavy demand after a major pullback in the growth space. The software stocks that bounced back the quickest are likely going to be market leaders going forward.
It always pays off to identify the strongest names in a sector, and that is certainly the case for software stocks. Several of the best quality names in software are consolidating after a nice rally and could be gearing up to rip higher in the coming weeks, especially with earnings season right around the corner.
We’ve put together a list of 3 software stocks that could be ready for the next leg up to help you stay on top of the best names in the space. Keep reading below to learn more.
1. Twilio
The rise of the internet has opened entirely new communication channels, including video calls, audio chats, emails, and text messages. Businesses recognize that real-time communications and messaging are a true necessity for cloud applications and games, which is part of why Twilio (NYSE:TWLO) is such a strong software company to own for the long term.
The company’s platform is designed to help developers embed messaging, voice, video, and authentication capabilities into their software applications, which is truly priceless in today’s increasingly tech-centric world.
Twilio has been delivering surprise non-GAAP profits for five straight quarters, and the company’s active customer base is growing at a very attractive pace. The stock could be ready to rally into Twilio’s Q2 earnings report on July 29, and a break above $406 could start the next leg up.
It’s hard to argue against this company’s massive market opportunity, with almost every company in the world in need of a way to improve customer interactions, which is why it's one of the best software stocks to keep on your radar.
2. Zscaler
Thanks to several recent high-profile cybersecurity breaches, including the Colonial Pipeline attack, cloud-based software companies, like Zscaler (NASDAQ:ZS), that offer beefed-up security solutions, are in the spotlight.
The company offers a platform that securely connects any user, any device, and any application over any network and is used by over 450 of the Forbes Global 2000. The company is also in the running to help the Pentagon enhance security and control with its prototype solutions, which could be a huge win for Zscaler long-term.
Cybersecurity compromises can be incredibly costly to businesses, especially since companies work so hard to develop trust with their customers. With the help of Zscaler, enterprises can likely avoid dealing with these types of serious compromises and securely move their operations onto the cloud without headaches.
With 60% year-over-year revenue growth in Q3 to $176.4 million and a Q3 record free cash flow, this is one software stock with plenty of positive earnings momentum. The stock is close to a blue-sky breakout, which means it could be ready to rip higher in the coming sessions.
3. Trade Desk
Finally, we have Trade Desk (NASDAQ:TTD), a software company operating a cloud-based platform that allows buyers to create, manage, and optimize data-driven digital advertising campaigns in various ad formats.
We know how quickly advertising has moved online, and the ability to use data to promote products and services is now a key part of every company’s marketing strategy. That’s a big reason why this company is worth a look, as advertising agencies recognize the need for a platform that helps with strong digital advertising campaigns across formats like display, video, audio, native, and social.
In case you missed it, Trade Desk split its stock 10 for 1 back in June and rocketed higher on news that Google (NASDAQ:GOOGL) plans to delay its phase-out of third-party tracking cookies, which are an important tool for online advertisers looking to target their spending.
The stock split could attract new buyers, and the company recently launched its next-generation platform called Solimar that might boost demand in the near term. Trade Desk is currently consolidating above all of the major moving averages, and a move over $82 on volume could be the start of a strong rally for this software stock.