SaaS stocks are ending 2023 on a high, with the theme up 13.8% in the three months through 15 December, according to OPTO’s theme tracker. Here is a collection of stocks to watch heading into the new year.
- Dassault Systemes raises its full-year profit outlook on the back of surging subscriptions.
- Adobe warns it’s facing an FTC investigation into its subscription practices.
- Intel has unveiled its generative AI chip, Gaudi3, which will compete with AMD and Nvidia.
The Raised Profit Outlook Stock
Dassault Systemes [DASTY] recently raised its full-year EPS target to €1.19–1.21 from a previously guided range of €1.18–1.20. The French software maker’s revenue increased 11% year-over-year to €1.4bn in the third quarter (Q3) of 2023, with subscription revenue rising 18%, up from a growth rate of 13% reported for the previous quarter. Sales of its 3DEXPERIENCE modelling and simulation platform jumped 46%. The Dassault Systemes share price hit a 52-week high on 13 December.
The Subscription Investigation Stock
Adobe [ADBE] could have to pay “monetary costs or penalties” as the result of a US Federal Trade Commission (FTC) investigation into its subscription cancellation practices. Earlier this year, the FTC proposed a ‘click to cancel’ regulation that would make it as easy for consumers to cancel a subscription as it is to take one out. Adobe buried the news in a regulatory filing announcing the publication of its Q4 2023 results, adding that the investigation “could have a material impact on our financial results and operations”.
Hewlett Packard Enterprise
The Nvidia Partnership Stock
Hewlett Packard Enterprise [HPE] announced at the end of November that it had extended its partnership with Nvidia [NVDA] “to enable organisations to become AI-powered businesses”. In a press release, HPE President and CEO Antonio Neri explained that “the data and computational demands to effectively run artificial intelligence (AI) models require a fundamentally different approach to technology” and that the company’s technology enables customers to “dramatically reduce barriers for customers looking to transform their businesses with AI”. The pair’s products are expected to be available to order from Q1 of calendar 2024.
The AI Chip Stock
Intel [INTC] unveiled new chips last week, including the Gaudi3 chip for generative AI software, which is expected to rival those of Nvidia and Advanced Micro Devices [AMD]. “AI innovation is poised to raise the digital economy’s impact up to as much as one-third of global gross domestic product,” said Intel CEO Pat Gelsinger. The company is building technologies that will “empower customers to seamlessly integrate and effectively run AI in all their applications,” he added. The Intel share price hit a 52-week high on 15 December, the day following the news.
The Data Strategy Stock
Snowflake [SNOW] reported a 34% year-over-year growth in product revenue for Q3 2024 — the three months to 31 October — while nine of its top 10 customers grew from the previous quarter. Generative AI has been the main driver, as companies realise the importance of having a data strategy in place to get the most out of the technology. “We said it many times: there’s no AI strategy without a data strategy. The intelligence we’re all aiming for resides in the data, hence the quality of that underpinning is critical,” said Snowflake Chairman and CEO Frank Slootman on the earnings call on 29 November.
Another Way to Invest in SaaS
The Invesco AI and Next Gen Software ETF
The Invesco AI and Next Gen Software ETF [IGPT] holds all five stocks. As of 30 September, 34.5% of the portfolio is allocated to semiconductor and semiconductor equipment, with 20.75% allocated to software. The fund is up 24.1% year-to-date.
The SPDR S&P Software & Services ETF [XSW] holds Adobe. As of 15 December, application software makes up 70.6% of the portfolio, while systems software has an 19.2% weighting. The fund is up 37% year-to-date.
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