The utilization of Artificial Intelligence (AI) is consistently surging across a wide array of industries and sectors. As businesses become increasingly aware of AI's substantial capacity to foster innovation and enhance efficiency, the demand for AI-based software solutions is bound to experience a noticeable upswing.

Given the buzz around AI, it could be wise to consider investing in three software stocks Microsoft Corporation (MSFT), Pegasystems Inc. (PEGA), and Verint Systems Inc. (VRNT), which are well-equipped to capitalize on this trend.

With the increasing desire for digital transformation among businesses, the demand for cloud software, business intelligence software, and various software types is expected to remain robust.

As indicated by Gartner's estimates, worldwide spending on software is set to witness a 13.7% year-over-year growth in 2023, reaching an impressive $922.75 billion. Looking ahead, the forecast for 2024 anticipates a substantial surge, projecting global software spending to reach $1.05 trillion, showcasing a 14.1% year-on-year rise.

Moreover, the business software market is poised for significant expansion, with an expected CAGR of 11.2%, propelling its value to around $987.61 billion by 2028.

Additionally, with the debut of OpenAI's ChatGPT last year, the AI movement has surged with remarkable momentum. Companies across various industries have enthusiastically embraced this trend, ushering in generative AI-powered chatbots, deploying AI assistants to efficiently manage enterprise data, and introducing AI services adept at producing images and videos.

Furthermore, given the escalating need for software-driven solutions and services, coupled with the swift uptake of AI tools and solutions, the worldwide AI software market is on the cusp of remarkable expansion. Forecasts indicate the market soaring to an astonishing $1.09 trillion by 2032, showcasing a remarkable CAGR of 23%.

Considering the robust projections, let us dive deeper into the fundamentals of the Software – Business picks, starting with number three.

Stock #3: Microsoft Corporation (MSFT)

One of the most popular and sought-after software companies, MSFT barely requires any introduction. It develops, licenses, and supports software, services, devices, and solutions worldwide. It offers services such as Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Skype for Business, Skype, Outlook.com, OneDrive, LinkedIn, etc.

On July 11, MSFT and KPMG announced a major global partnership expansion focused on workforce modernization, secure development, and utilization of AI solutions across industries. As part of this groundbreaking alliance, KPMG has committed to investing multibillion dollars in Microsoft Cloud and AI services within the next five years.  

By harnessing the power of Microsoft Cloud and Azure OpenAI Service capabilities, KPMG’s vast global workforce of 265,000 employees will be empowered to unlock their creativity, conduct faster analysis, and dedicate more time to strategic advice. This enhanced capacity should enable the companies to better assist clients, including over 2,500 KPMG and MSFT joint clients.

On June 29, MSFT and Moody’s Corporation (MCO) unveiled a strategic partnership to provide cutting-edge solutions for financial services and global knowledge workers. This collaboration will leverage MCO’s strong data and analytical capabilities along with the immense power and scale of Microsoft Azure OpenAI Service.

Together, they will develop innovative offerings that elevate corporate intelligence and risk assessment insights using Microsoft AI and Moody’s proprietary data, analytics, and research as the foundation.

MSFT’s total revenue increased 8.3% year-over-year to $56.19 billion in the fourth quarter (ended June 30, 2023), while its operating income rose 18.1% from the year-ago value to $24.25 billion.

The company’s net income and EPS grew 19.9% and 20.6% from the prior-year quarter to $20.08 billion and $2.69, respectively. In addition, its comprehensive income amounted to $19.38 billion, up 33.3% from the year-ago value.

The consensus EPS estimate of $2.64 for the first quarter of fiscal 2024 (ending September 2023) represents a 12.5% improvement year-over-year. The consensus revenue estimate of $54.51 billion for the ongoing quarter reflects an 8.8% increase from the same period last year.

Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.

The stock has gained 37.1% year-to-date to close the last trading session at $328.79.

MSFT’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Stability, Sentiment, and Stability. Among the 47 stocks in the Software – Business industry, it is ranked #12. To see additional POWR Ratings for Growth, Value, and Momentum of MSFT, click here.

Stock #2: Pegasystems Inc. (PEGA)

PEGA develops, markets, licenses, hosts, and supports enterprise software applications. The company provides Pega Platform, an intelligent automation software for clients' processes and workflows; and Pega Infinity, a software platform that unifies customer engagement and digital process automation.

On July 17, PEGA paid its shareholders a quarterly dividend of $0.03 per share. The company’s annual dividend of $0.12 translates to a 0.24% yield on the prevailing prices, while its four-year average dividend yield is 0.17%.

On June 12, PEGA unveiled the latest version of its Pega Infinity™ software, which includes a range of new features designed to expedite low-code development, enhance current processes through continuous optimization, and establish seamless experiences for both employees and customers.

These newly added functionalities are intended to aid businesses in progressing toward achieving autonomy in their operations. This transition enables them to accelerate innovation, boost efficiency, personalize customer experiences, all while cutting down on expenses and manual efforts.

Additionally, on May 9, PEGA introduced Pega Process Mining. This launch aims to simplify the process of identifying and rectifying operational inefficiencies that may be impeding business operations, catering to PEGA users across different proficiency levels.

These user-friendly process mining features and AI-ready APIs for generative tasks will be smoothly incorporated into the Pega Platform™. This integration is expected to provide organizations with a cohesive solution to consistently enhance the efficiency of their Pega workflows.

For the second quarter, which ended on June 30, 2023, PEGA’s total revenue increased 8.7% year-over-year to $298.27 million. Meanwhile, the company’s non-GAAP net income and non-GAAP EPS came in at $1.20 million and $0.01, compared to a non-GAAP net loss and non-GAAP loss per share of $31.41 million and $0.38 in the same period last year, respectively.

Streets expect PEGA’s revenue and EPS for the fourth quarter (ending September 2023) to increase 10.1% and 38.9% year-over-year to $436.51 million and $1.14, respectively. 

PEGA’s shares have gained 47.4% year-to-date to close the last trading session at $50.46.

PEGA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.

It also has a B grade for Growth and Value. Within the same industry, it is ranked #11. Click here to see the other ratings of PEGA for Momentum, Stability, Sentiment, and Quality.

Stock #1: Verint Systems Inc. (VRNT)

VRNT provides customer engagement solutions worldwide. It offers various applications for use in Forecasting and Scheduling, Quality and Compliance, Interaction Insights, Knowledge Management, etc.

On July 20, VRNT revealed that its Verint Customer Engagement Platform, driven by Verint Da Vinci™ AI, secured the prestigious title of "Best Overall AI Platform" in the sixth edition of the AI Breakthrough Awards. Verint Da Vinci AI is the central component of the Verint Open CCaaS Platform™, empowering brands to extract the utmost value from AI and achieve concrete business results.

This achievement marks VRNT’s sixth successive AI Breakthrough award, having previously secured the titles of "Best Chatbot Solution" in 2022, "Best Virtual Agent Solution" in 2021, "Best AI-based Solution for Customer Service" in 2020, "Best Chatbot Solution" in 2019, and "Best Overall AI Solution" in 2018.

On March 29, VRNT unveiled an extended collaboration with Google Cloud, aiming to enhance contact center performance by merging Google Cloud's Contact Center AI with the Verint Customer Engagement Platform. By leveraging this partnership, VRNT aims to offer a cohesive and open platform that seamlessly incorporates AI-powered out-of-the-box integrations.

For the first quarter of fiscal 2024, which ended on April 30, VRNT’s total revenue amounted to $216.57 million, while its gross profit rose 4.9% from the year-ago value to $148.16 million. Its operating income grew significantly from the prior-year quarter to $8.77 million.

Moreover, the company’s attributable net income came in at $3.29 million, increasing significantly from the prior-year quarter. Also, its adjusted EBITDA stood at $51.86 million, up 2.5% year-over-year.

Analysts expect VRNT’s revenue for the second quarter (ended July 2023) to increase marginally year-over-year to $224.94 million. While its EPS for the same quarter is expected to increase 1.5% year-over-year to $1.57. Moreover, the company topped its EPS estimates in each of the trailing four quarters, which is impressive.

The stock lost marginally intraday to close the last trading session at $32.71.

It’s no surprise that VRNT has an overall rating of B, which translates to Buy in our proprietary rating system. It has a grade of B for Growth and Value. Out of 47 stocks in the same industry, it is ranked #10.

In addition to the POWR Ratings we’ve stated above, we also have VRNT’s ratings for Momentum, Stability, Sentiment, and Quality. Get all VRNT ratings here.

43 Year Investment Pro Shares Top Picks

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MSFT shares were trading at $327.74 per share on Thursday morning, down $1.05 (-0.32%). Year-to-date, MSFT has gained 37.59%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.

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