Software is rapidly reducing operating expenses for businesses. This secular theme has materialized in superior earnings growth and stock price performance for most SaaS companies, and over the last six months, the industry’s 38.7% return has topped the S&P 500 by 25.6 percentage points.
Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. Taking that into account, here is one software stock boasting a durable advantage and two that may face trouble.
Two Software Stocks to Sell:
Autodesk (ADSK)
Market Cap: $52.68 billion
Starting with AutoCAD in the 1980s and evolving into a comprehensive design ecosystem, Autodesk (NASDAQ: ADSK) provides software solutions for architecture, engineering, construction, manufacturing, and entertainment industries to design, simulate, and visualize projects.
Why Do We Think Twice About ADSK?
- Sales trends were unexciting over the last five years as its 14% annual growth was below the typical software company
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Operating margin improvement of 4.8 percentage points over the last year demonstrates its ability to scale efficiently
At $248.24 per share, Autodesk trades at 6.3x forward price-to-sales. To fully understand why you should be careful with ADSK, check out our full research report (it’s free).
Dropbox (DBX)
Market Cap: $7.31 billion
Originally named after the founders' tendency to "drop" files into a shared folder, Dropbox (NASDAQ: DBX) provides a content collaboration platform that helps individuals and teams store, organize, share, and work on files from anywhere.
Why Are We Bearish on DBX?
- Customers had second thoughts about committing to its platform over the last year as its billings plateaued
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Operating margin improved by 4.2 percentage points over the last year as it eliminated redundant costs
Dropbox is trading at $33.64 per share, or 3.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DBX.
One Software Stock to Watch:
Cadence Design Systems (CDNS)
Market Cap: $88.99 billion
Powering the chips behind everything from smartphones to AI accelerators for over 35 years, Cadence Design Systems (NASDAQ: CDNS) provides essential computational software, hardware, and intellectual property used by engineers to design and verify advanced electronic systems and semiconductors.
Why Are We Fans of CDNS?
- Winning new contracts that can potentially increase in value as its billings growth has averaged 17.9% over the last year
- Superior software functionality and low servicing costs result in a best-in-class gross margin of 86.8%
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
Cadence Design Systems’s stock price of $323.28 implies a valuation ratio of 13.5x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.
