By Sam Boughedda
BofA analysts said on Monday that the firm favors software stocks Microsoft (NASDAQ:MSFT), Atlassian (NASDAQ:TEAM), Zoom Video Communications Inc (NASDAQ:ZM), Smartsheet (NYSE:SMAR) and Box Inc (NYSE:BOX).
In a note to clients focused on software stocks and the future of work, they told investors to "focus on the Future of Work given ~$90B increase in annual spend by 2026 and exposure to key secular trends: digital transformation, automation, productivity and distributed workforce."
The analysts upgraded Box Inc to Overweight from Equal-weight. They increased Box Inc's price target from $32 to $34 per share, while Smartsheet was cut from $62 to $54 per share.
After previously publishing a note at the start of the pandemic on the future of work, they said the firm now sees a larger opportunity, "but the competitive landscape addressing the market has intensified."
The analysts stated that the Future of Work "represents a large market opportunity."
"According to IDC, the categories we define within the Future of Work (Team Communication & Collaboration, Content Management, and Workflow Automation) are expected to double in next 5 years, growing at a 14% CAGR from $92 billion in 2021 to $179 billion in 2026," they stated.
The analysts added that an evolving and intensifying competitive landscape has become "more crowded, ripe for consolidation, particularly as vendors look to broaden capabilities."
"Vendors are building and buying capabilities to address this large opportunity. Key investor debate is around positioning and potential macro demand impacts post-covid – which Future of Work categories and vendors will fall to the ‘nice to have’ bucket in a more challenging macro? Bulls see collaboration, coordination, and communication FoW categories aligned to productivity; mission criticality of content management; and automation focused on efficiency, cloud-based FoW vendors have a compelling value proposition and ROI that should prove durable under budget scrutiny," they wrote.
"Bears see lower and uncertain demand after benefitting from covid tailwinds. Rationalization and consolidation of spend is likely, given ‘nice to have’ does not hold up well on a CIO’s defensibility list."