These software stocks are leaders in their spaces and are leveraging artificial intelligence to stay ahead.
The tech sector remains a popular source of investing ideas due to the fast-paced growth often seen by the best companies. Not all tech stocks are winners, but identifying companies with strong financials, consistent results, and bright futures is key for investors looking for long-term, market-beating results.
These two software companies offer compelling investment opportunities because of their market leadership and clear paths to continued success. Let’s dig in to see why these are two of the best stocks to buy without any hesitation.
ServiceNow
Most companies need two kinds of software. Public-facing software helps the company reach the world and internal software helps the business run efficiently. ServiceNow (NOW -2.56%) helps businesses manage their operations in areas like human resources, technology, and customer-service management.
ServiceNow has a long history of impressive performance and steady growth, and the recently reported second quarter of 2024 was no exception. Subscription revenue increased by 23%, and current remaining performance obligations (revenue that will be recognized in the next 12 months) grew by 22%.
The company also has a long track record of expanding its customer relationships. In Q2, the number of customers with an annual contract value (ACV) of $1 million or more grew by 15%. This metric has increased sequentially in every quarter for the past two years.
ServiceNow is also putting a lot of focus on artificial intelligence (AI) with its generative AI product called Now Assist. According to management, Now Assist has become the fastest-growing new product in the company’s history, with new ACV doubling over the first quarter.
Adobe
Not only is Adobe (ADBE -3.70%) the clear leader in the digital-creation space, but it has also been a market-beating stock over the long term. Over the past 10 years, Adobe’s stock return has outpaced the S&P 500 by nearly 500 percentage points.
Adobe’s creative products, which include Photoshop and Illustrator, are the industry standard, and the long-term financial results of the company demonstrate their power in the market. In Q2 of 2024, Adobe’s revenue grew by 11%, and earnings per share (EPS) increased by 24%.
The fact that the bottom line is outpacing the top line demonstrates operational efficiencies by Adobe that ultimately are good for shareholders. Some of Adobe’s profits have been used to repurchase stock. Over the last five years, the company has reduced its shares outstanding by nearly 9%.
Like ServiceNow, Adobe is building AI tools into many of its products. Rather than viewing AI as a threat to creativity, Adobe views it as an assistant. Rather than taking time on mundane tasks, creators can use AI for that purpose so they can spend more time on the creative aspects of their projects. If Adobe can convince its users that these tools are worthwhile, this could be an additional revenue stream for the company.
The bottom line for investors
As leaders in their spaces, both ServiceNow and Adobe have to keep bringing strong financial results to hold off competitors. Their interest in implementing AI into their products should help them keep their competitive position as long as these investments continue to lead to additional revenues and profits. Both companies are well positioned for the future, which is what makes them stocks to buy without hesitation.
Jeff Santoro has positions in Adobe and ServiceNow. The Motley Fool has positions in and recommends Adobe and ServiceNow. The Motley Fool has a disclosure policy.
