Oracle (NYSE: ORCL), Sales team (NYSE: CRM)And Adobe (NASDAQ: ADBE) are three of the largest US-based software companies. Oracle’s stock price has tanked over the past year, but Salesforce and Adobe have done even worse, with Salesforce down more than 10% this year and Adobe down more than 25%.
All three companies have fallen to attractive valuations based on their future earnings expectations, suggesting they could be cheap if they can deliver expected results.
This is why it would be better for investors to choose these large, proven software companies over some of the smaller companies that are also selling out, and why all three of these growth stocks are worth buying right now to buy.
1. Oracle: from dotcom crisis to cloud explosion
Oracle has the S&P500 and the Nasdaq Composite over the past three years, while Salesforce and Adobe have lost value over that period.
Oracle has been around since the 1970s, when it started with the Oracle Database, a relational database management system. Thanks to a number of smart acquisitions over the years, it has become a leader in business and database software.
At the height of the Internet bubble on September 1, 2000, Oracle’s stock price exceeded $46 per share. It would take almost 17 years for another record high to be reached.
Centralized data systems have made storage cheaper, more secure, and easier to access. Although the cloud was originally seen as a disruptor and potential threat to Oracle, it ultimately became a net positive for the company.
Oracle Cloud has been largely responsible for the company’s renaissance. Launched in 2016, Oracle Cloud combines the company’s history of database management with the benefits of modern data centers. Oracle supplies the complete package of servers, storage, applications and other services.
Management claims its offering is better than competing services such as Amazon Web services, Microsoft Azure, and Googling Cloud because Oracle Cloud is fast and offers features like migrating workloads to Oracle Cloud for easy access.
Despite only having a 2% share of the global cloud services market, Oracle is well positioned to take advantage of the next chapter in cloud infrastructure by leveraging artificial intelligence (AI) and building custom AI cloud configurations. People who are bullish on Oracle believe it has the right approach to taking market share from the leaders. The results speak for themselves, as Oracle’s cloud infrastructure revenues increased 49% year over year in the most recently reported fiscal quarter, with cloud software and infrastructure-as-a-service representing 38% of total revenue.
Oracle’s revenues stagnated from early 2010 until about 2021. But revenues rose in recent years largely thanks to Oracle’s high-margin cloud business. It’s not just sales that are growing. Analyst consensus estimates are for earnings per share of $5.59 in 2024 and $6.23 in 2025.
Thanks to fast-growing sales and profits, the stock has remained great value despite market-losing performance in recent years. Oracle’s forward price-to-earnings (P/E) ratio is just 18.8. That will look like a bargain in the future if Oracle’s cloud growth proves sticky.
2. Salesforce: Growth continues to disappoint
Salesforce has long been a leader in enterprise software-as-a-service. For a while, investors’ expectations for the company were based on a revenue growth-at-any-cost approach, with profits as an afterthought. And Salesforce delivered: it grew into one of the largest software companies in the US and joined the Dow Jones Industrial Average in 2020 – a testament to its integral role within companies. But as Salesforce matured, investor expectations changed, placing more emphasis on profitability.
To its credit, Salesforce has made progress in controlling costs and improving margins. The operating margin over the last twelve months is 18.5%. Operating margins have been negative or in the low single digits for most of the past decade.
The problem is that Salesforce’s growth is slowing at an alarming rate. It’s guiding for revenue growth of just 7% to 8% in the second quarter — a rate that would make more sense for a stalwart consumer goods company than a high-octane tech player.
Unsurprisingly, Salesforce stock ran into trouble after reporting its latest quarterly results and issuing weak guidance. But now Salesforce is starting to look like a better value.
Salesforce has yet to monetize artificial intelligence (AI) in a meaningful way. Profits are also supported by layoffs (lower costs), so not all progress is tied to growth. The stock could remain under pressure in the short term as investors adjust their expectations, but Salesforce is still well positioned to be a long-term winner for patient investors.
3. Adobe: AI drives much-needed innovation
Adobe’s Creative Cloud is a textbook example of the effectiveness of the software-as-a-service business model. In 2012, Adobe began bundling its software suite through monthly or annual subscriptions rather than licensing individual applications to users. It was a brilliant move. However, Adobe has been in an innovation lull for some time now, reaping the benefits of its business model and market position but leaving itself vulnerable to losing market share to Canva and other rivals.
Adobe reports fiscal second quarter 2024 results on June 13. All eyes will be on full-year spending and updates. The stock is down 22% since the company’s last report in mid-March. And unfortunately, the sell-off was somewhat justified.
Adobe’s near-term expectations were off, as AI investments weigh on costs rather than drive meaningful earnings growth. Adobe boomed late last year thanks to AI-driven enthusiasm. But the market’s perception of this has changed and investors are demanding a visible path to AI profitability rather than applauding investments and assuming they will pay off.
The good news is that Adobe has already developed many exciting new tools and product improvements that may be largely underappreciated. The company’s annual digital experience conference, Adobe Summit 2024, showcased exciting developments such as Adobe’s AI Assistant for Acrobat and Reader, FireFly Services and applications built on the Adobe Experience Platform.
The shares could continue to languish – as long as Wall Street takes a closer look at Adobe’s short-term results. But in the longer term, I think the company is taking the right steps. Adoption may take some time, but Adobe’s market position and valuation are too attractive to pass up, especially considering how much its stock has sold for.
Should You Invest $1,000 in Oracle Now?
Consider the following before buying shares in Oracle:
The Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Oracle wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $704,612!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 3, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Adobe, Alphabet, Amazon, Microsoft, Oracle and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
3 Top Cloud Software Growth Stocks That Are Too Cheap to Ignore was originally published by The Motley Fool
