It’s no secret that technology stocks have been driving market gains in recent years, and software stocks have been among the biggest drivers of this growth.
Several factors are driving the software industry forward, such as the rapid advancement of AI technology, the high demand for IT solutions and the continued expansion of the global digital economy.
Wedbush technology expert Daniel Ives has been keeping an eye on the tech industry, and his view of it points to continued strength, supported by AI and cloud expansion.
“Solid corporate spending, the recovery of digital advertising and the AI revolution will, in our view, drive tech stocks higher through the end of the year,” Ives said. “We believe that 70% of global workloads will be in the cloud by the end of 2025, up from less than 50% today.”
With that in mind, Ives adds that it’s time to buy two software stocks. They may not be household names, but according to TipRanks data, both stocks have a Buy rating — and Ives sees significantly more upside for both stocks than the Street consensus. Let’s take a closer look.
Bank base (BASING)
We start with Couchbase, a modern database platform provider that gives users and developers everything they need to support a wide range of applications – from cloud to edge and AI. Couchbase bills itself as a one-stop shop for data developers and architects and makes its services available through its powerful database-as-a-service platform, Capella. Organizations using the service can quickly create applications and services that deliver best-in-class customer experiences and top performance at affordable prices.
The Capella platform brings the popular as-a-service subscription model to the database industry. The company can support database services for a wide range of AI applications, including next-generation AI technology, as well as database queries, mobile access and analytics functions. Customers can also opt for self-managed services through Couchbase’s servers, with local management for both multi-cloud and community apps.
Couchbase’s database service has found success in a wide range of areas, including the gaming, healthcare, entertainment, retail, travel and utilities sectors. The company’s customer base includes big names like Verizon, UPS, Walmart, Cisco, Comcast, GE and PayPal.
In terms of financial results, we see that Couchbase reported Q2 25 numbers early last month. Revenue of $51.6 million was up nearly 20% year over year and came in just above forecast, beating expectations by nearly half a million dollars. Ultimately, the company posted a net loss of 6 cents per share on non-GAAP measures, but that was 3 cents per share better than expected.
Analyst Daniel Ives likes what he sees in this database software company. The tech expert goes through several factors that should lure investors to the stock, writing: “The company sees strength in net new logos, while the launch of its new products will again accelerate its growth in the coming quarters… Couchbase estimates that their TAM will grow to ~$150 billion by 2028 with high-performance and scalable modern applications driving the market, with AI accelerating further opportunities for high-performance applications as the company looks to target demand for growing sub-segments of the DBMS market in cloud and on-premises -premise environments.”
Looking ahead, Ives further explains how the Capella platform has the potential to boost Couchbase’s performance: “While it is still early in terms of the contribution to revenue or ARR, the company noted that it plans to expand Capella statistics to be made public in the future, with Capella acting as a ‘game changer’ for BASE with ease of adoption or implementation compared to alternative customer-managed offerings, while helping to reduce adoption friction, leading to an acceleration of the net new customers, some driven by Capella, and existing customers with on-prem products migrating and expanding Capella.”
Along with a recent upgrade from Neutral to Outperform (i.e. Buy), Ives has a $26 price target on BASE stock, suggesting a one-year upside of 60%. (To view Ives’ track record, click here)
Overall, Couchbase has a Moderate Buy Street consensus rating, based on 13 reviews divided into 10 Buys, 2 Holds, and 1 Sell. The stock is priced at $16.25 and the average price target of $22.62 implies a 39% upside in the coming year. (To see Couchbase stock forecast)
Dynatrace (D.T)
Next up is Dynatrace, a major player with $16 billion in software sales. Dynatrace offers its customers the latest in AI-powered, cloud-based data management technology. The business platform supports intelligent automation that puts network management, cloud monitoring and data analytics working in one place for a unified mission. Dynatrace’s platform can be applied to virtually every aspect of the tech and business world, allowing users to benefit from AI-powered app automation, business analytics, digital security, infrastructure monitoring and microservices.
Judging by the numbers, Dynatrace has an impressive business footprint. The company has more than 4,000 subscription customers and generates approximately $1.5 billion in recurring revenue annually. An impressive 95% of the company’s revenue comes from its subscription services, and the company has a gross retention rate in the mid-90s, indicating high levels of customer satisfaction. Dynatrace counts a number of big names among its customers, including Dell Technologies, Air Canada and the Australian government.
Last summer, Dynatrace announced its fiscal first quarter 25 (June quarter) financial results. The top and bottom lines for the quarter both came in well above expectations: revenue was up nearly 20% year-over-year at $399 million and better than expected by $6.56 million; non-GAAP earnings per share, of $0.33, were four cents per share above expectations.
Looking further, the company’s key results in subscriptions bode well for the future. Total subscription revenue was $382 million for the quarter, a gain of 21% year over year, and annual recurring revenue (ARR) was $1.541 billion, up 19% from the prior year period.
This company’s use of AI and its strategy to acquire large customers caught Ives’ attention, and the analyst writes about it: “Dynatrace is a leader in observability with a growing portfolio and a long path to growth with a unique combination of growth and profitability and has the highest operating margins in the industry. The company’s focus on large enterprise customers results in higher ARPU figures compared to its peers because the company’s technology and competitive position are positive as it is one of the few vendors in the industry that supports a hybrid deployment model.”
Here again, the Wedbush analyst recently upgraded his rating from Neutral to Outperform (i.e. Buy), while his increased price target of $67 (from $55) implies 26% one-year upside potential.
Looking at the Street consensus, Dynatrace has a Strong Buy rating based on 20 recent reviews favoring Buy over Hold by 18 to 2. The stock has a current trading price of $53.25 and the average price of $60.06 suggests DT will gain 13% this time next year. (To see Dynatrace stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is very important to do your own analysis before making an investment.
