The software industry is thriving due to the widespread adoption of cloud-based and AI applications.

So, investors could consider buying quality software stocks NICE Ltd. (NICE), Autodesk, Inc. (ADSK), and eGain Corporation (EGAN), which exhibit robust profitability. Moreover, the stocks are rated an A (Strong Buy) in our proprietary rating system, POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The broader trend of digital transformation is fueling increased investments in software sectors, particularly those centered on digitization, process automation, and data analytics to enhance business insights and efficiency. The transition from on-premises software deployment to software-as-a-service is becoming increasingly pertinent.

The U.S. software market revenue is expected to reach $338.20 billion this year and grow at a CAGR of 4.2% to reach $414.70 billion by 2028.

Moreover, cloud computing revolutionizes business operations, enabling adaptability and efficiency in changing market conditions. It empowers the consumerization of technology, enhancing customer experiences and driving a shift in how people and businesses operate.

The global cloud computing market is set to grow at a CAGR of 14.1% until 2030.

In addition, Artificial Intelligence (AI) has transformed industries worldwide, propelling the software sector's opportunities to new heights.

AI is utilized to enhance performance and gain valuable insights. As a result, it plays a vital role in sectors like banking, retail, and IT telecommunications for cybersecurity. The artificial intelligence software market is expected to reach approximately $1.09 trillion by 2032 at a CAGR of 23%.

Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to buy in the Software - Application industry, starting with the third in line.

Stock #3: NICE Ltd. (NICE)

Based in Ra’anana, Israel, NICE provides cloud platforms for AI-driven digital business solutions worldwide, together with its subsidiaries.

NICE’s trailing-12-month ROCE of 10.16% is 773.4% higher than the 1.16% industry average. Its trailing-12-month net income margin of 13.48% is 562.6% higher than the 2.03% industry average.

On October 24, NICE announced that Hastings Direct, in collaboration with NICE and BSL Group, successfully migrated to the cloud with NICE CXone, consolidating their operations and gaining valuable insights into their contact centers. They replaced eight separate on-premise platforms with a unified platform for voice, live chat, and email interactions, leading to a 26% boost in productivity and improved agent experiences.

On October 4, NICE entered a definitive agreement to acquire LiveVox Holding, Inc. (LVOX), a prominent AI-driven proactive outreach provider. This acquisition will combine NICE's CXone platform with advanced digital engagement and AI (Enlighten) and LVOX's proactive outreach solutions.

This collaboration aims to deliver proactive, personalized customer experiences across various channels, elevating CX in the era of digital and AI.

In the fiscal second quarter ended June 30, 2023, NICE’s total revenue rose 9.5% year-over-year to $581.11 million. Its non-GAAP gross profit came in at $391.40 million, up 7% year-over-year. The company’s non-GAAP net income increased 14.9% from the year-ago quarter to $141.51 million and non-GAAP EPS grew 14.5% from the prior-year quarter to $2.13.

The company has projected non-GAAP total revenues to be between $590 million and $600 million, indicating a 7% year-over-year growth at the midpoint in the third quarter of 2023. Additionally, non-GAAP EPS are anticipated to fall within the range of $2.10 to $2.20, reflecting a 12% year-over-year growth at the midpoint.

Analysts expect NICE’s EPS and revenue to rise 11.8% and 7.1% year-over-year to $2.15 and $594.15 million in the fiscal third quarter that ended September 2023. It surpassed revenue estimates in all four trailing quarters, which is impressive.

NICE’s shares declined 1.3% intraday to close the last trading session at $156.48.

NICE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It also has a B grade for Sentiment and Quality. It is ranked #13 in the 132-stock Software - Application industry.

Beyond what is stated above, we’ve also rated NICE for Momentum, Stability, Growth and Value. Get all NICE ratings here.

Stock #2: Autodesk, Inc. (ADSK)

ADSK is a software and service company specializing in 3D design, engineering, and entertainment software and services worldwide. It sells its products and services directly to customers through a network of resellers and distributors.

ADSK’s trailing-12-month net income margin of 16.77% is 724.5% higher than the industry average of 2.03%. The stock’s trailing-12-month levered FCF margin of 39.95% is 434.8% higher than the industry average of 7.47%.

During the fiscal second quarter that ended July 31, 2023, ADSK’s total subscription and maintenance revenue increased 9.1% year-over-year to $1.28 billion. Its non-GAAP income from operations increased 10.1% from the same quarter last year to $489 million and non-GAAP net income per share came in at $1.91, representing a 15.8% year-over-year growth.

For the fiscal year ending January 31, 2024, the company expects its total revenues to come between $5.36 billion and $5.46 billion, while its non-GAAP EPS is expected to reach between $6.98 and $7.32.

The consensus revenue estimate of $1.39 billion indicates an 8.4% year-over-year growth in the fiscal third quarter ending October 2023. In the same quarter, the consensus EPS estimate of $1.99 indicates a 17.1% rise from the year-ago quarter. In addition, ADSK topped consensus revenue estimates in three of the four trailing quarters.

The stock soared 7.1% year-to-date to close its last trading session at $200.21.

ADSK’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

ADSK is also rated an A for Quality and a B for Sentiment. Within the same industry, it is ranked #11.

Click here to see ADSK’s additional POWR Ratings for Value, Momentum, Growth, and Stability.

Stock #1: eGain Corporation (EGAN)

EGAN specializes in developing, licensing, implementing, and supporting customer service infrastructure software solutions. Its main offering is the Knowledge Hub, a unified solution that automates, augments, and orchestrates customer engagement. EGAN provides subscription services for cloud-based access to their software and offers professional services.

EGAN’s trailing-12-month ROCE of 3.56% is 207.7% higher than the 1.16% industry average. Its trailing-12-month asset turnover ratio of 0.77x is 24.1% higher than the 0.62x industry average.

On October 18, EGAN announced that Rogue Credit Union had deployed its top-rated solution to assist contact center agents and retail bankers across the business. Rogue Credit Union turned to eGain to address challenges in the financial services industry, where customer experience (CX) performance has declined.

On September 25, EGAN introduced eGain AssistGPT™ during its Solve™ 23 conference in London. This tool is an essential component of the eGain Knowledge Hub, and it relies on Generative AI to provide a zero-code solution for Knowledge Automation.

Additionally, AssistGPT offers a best-practice prompt library that allows organizations to include prompts tailored to their specific business needs. It operates on a BYO (Bring Your Own) architecture, enabling businesses to integrate their own AI engines for prompt responses.

EGAN’s total revenue for the fiscal fourth quarter ended June 30, 2023, rose 4.5% year-over-year to $24.64 million. Its non-GAAP income from operations came in at $3.32 million, up 360% from the year-ago quarter. Its non-GAAP net income grew 299.1% and 266.7% year-over-year to $3.56 million and $0.11 per share.

Additionally, the company’s adjusted EBITDA improved 367.9% year-over-year to $4.01 million.

For the first quarter of fiscal 2024 ended on September 30, 2023, EGAN projects total revenue to fall between $23.5 million and $24.0 million. It anticipates a non-GAAP net income between $1.7 million and $2.2 million, translating to $0.05 to $0.07 per share.

Street expects EGAN’s EPS for the fiscal first quarter ended September 30, 2023, to increase 16.7% year-over-year to $0.07. Its revenue is likely to be $23.86 million in the same quarter. It surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past month, the stock has declined marginally to close the last trading session at $5.93.

EGAN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

It has an A grade for Sentiment and Quality and a B for Growth, Value, and Stability. It is ranked #2 in the same industry.

To see EGAN’s Momentum ratings, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

ADSK shares were trading at $194.00 per share on Thursday afternoon, down $6.21 (-3.10%). Year-to-date, ADSK has gained 3.82%, versus a 9.18% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

More...