In the world of Big Tech, the buzz this year continued to focus on Nvidia Corp., with its leading position in providing graphics processing units used by data centers to support the development of generative artificial intelligence. But software stocks have soared in the second half of the year, with many software companies posting strong numbers.
The shares of Palantir Technologies Inc. PLTR have quadrupled so far in 2024, even outperforming Nvidia’s NVDA total return of 193% with dividends reinvested. Palantir sells software to governments and businesses, and its artificial intelligence offering has seen a particular boost in recent quarters.
Analysts predict that Palantir’s 2024 revenue could reach $4.22 billion, up 26% from 2023. The analysts expect similar revenue growth in 2025, but as you can see in the second table below, they are also believes that investors have pushed the company’s shares far too high.
Read: Palantir’s fiery stock boom has been polarizing. This is what the CEO thinks.
We screened the 27 software companies in the S&P 500 SPX, as categorized by FactSet, for expected revenue growth in calendar 2025. The estimates are adjusted for calendar years for companies (such as Microsoft Corp. MSFT) whose fiscal reporting periods do not match. the calendar.
Here are the 10 software companies in the S&P 500 expected to grow revenue the most next year, based on consensus estimates among brokerage firm analysts surveyed by FactSet:
|
Company |
Ticker |
Expected sales growth in 2025 |
East. 2025 revenue ($ million) |
East. 2024 revenue ($ million) |
East. 2025 EPS |
East. 2024 EPS |
|
Take-Two Interactive Software Inc. |
TWO |
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 |
POWER |
21.9% |
$4,683 |
$3,842 |
$4.30 |
$3.69 |
|
ServiceNow Inc. |
NOW |
20.5% |
$13,245 |
$10,987 |
$16.60 |
$13.90 |
|
Honest 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. |
ADSC |
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 in expected revenue growth in calendar 2025, behind Take-Two Interactive Software TTWO, parent company of Rockstar Games.
Rockstar is the developer of the ‘Grand Theft Auto’ franchise. On the right side of the table you can see that analysts expect a huge increase in earnings per share for Take-Two next year, following the expected release of ‘Grand Theft Auto VI’. But Rockstar hasn’t said much about the timing of the highly anticipated game since releasing a trailer last December.
In a letter 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 move meaningfully higher from here.” He suggested that investors would view any announcement of a further delay in the release of “Grand Theft Auto IV” as a buying opportunity for Take-Two’s stock. For now, he has a neutral rating on Take-Two.
Analysts are also optimistic about the revenue growth potential of cybersecurity companies heading into next year, with CrowdStrike Holdings Inc. CRWD and Palo Alto Networks Inc. PANW are both in the top 10 in terms of expected growth.
Both cybersecurity stocks have clear stories. CrowdStrike made headlines for all the wrong reasons this summer when a bad software upgrade caused a massive technology outage. But with analysts forecasting revenue growth of nearly 22% next calendar year, the company’s business should continue. “Concerns about a significant acceleration in customer churn were decisively refuted in the last quarter,” Evercore ISI analyst Peter Levine recently wrote.
Meanwhile, Palo Alto Networks has been banking on success with its “platformization” strategy, in which the company gives away a product for free to customers to eventually drive greater paid adoption of its broader suite.
“We continue to see Palo Alto Networks’ platform strategy taking root” and driving market share gains, Jefferies analyst Joseph Gallo wrote Thursday.
For Palantir, the following table illustrates how even analysts who work for brokerage firms (known as sell-side analysts) can avoid a stock if investors are exuberant.
Keeping the software companies in the same order, here’s a summary of the analysts’ views on the stocks:
|
Company |
Ticker |
Buy Ratings for Stocks |
Share neutral reviews |
Share sales ratings |
December 4 prize |
Disadvantages. Price target |
Implied upside potential over twelve months |
|
Take-Two Interactive Software Inc. |
TWO |
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 |
POWER |
76% |
20% |
4% |
$364.16 |
$378.72 |
4% |
|
ServiceNow Inc. |
NOW |
83% |
12% |
5% |
$1,123.13 |
$1,029.43 |
-8% |
|
Honest 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. |
ADSC |
56% |
44% |
0% |
$304.23 |
$325.76 |
7% |
|
Dayforce Inc. |
DAY |
57% |
43% |
0% |
$80.71 |
$83.50 |
3% |
|
Source: FactSet |
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Read: Tomi Kilgore’s guide to the wealth of information available for free on MarketWatch’s quotes page
To be fair, while eight of the 10 stocks have a Majority Buy rating or equivalent, most are considered fairly priced according to 12-month price targets. Four of the stocks were above targets at Wednesday’s close. And Palantir stood out, not only with a price target 43% below the consensus price target, but also with a sell or equivalent rating of 35%.
Within the S&P 500, there are no stocks with a majority Sell rating. This may be because an analyst typically believes that negative information about a company is already incorporated into the stock price.
According to Palantir, having such high sell ratings could reflect analysts’ belief that investors have been carried away by the company’s success.
Of the S&P 500, only four companies have higher percentages of sell or equivalent ratings than Palantir, among analysts surveyed by FactSet.
Meanwhile, Microsoft stock is almost universally liked. Microsoft is “winning the cloud and AI war,” HSBC’s Stephen Bersey wrote last month.
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