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Category: Enterprise Software

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AI Enterprise Software Industry Market Outlook Stocks

AI And The Multiplier Effect From Software

The AI Software Revolution

02/11/2025

The Software Multiplier Effect: An interesting note from Wedbush’s Dan Ives on Artificial Intelligence, who believes that software AI players will likely get 8 times the revenue of hardware sellers. I.e., a multiplier effect of 8:1 from software.

He is directionally right, and I do agree with him about the multiplier effect of software, services, and platforms on top of hardware sales. I had done a primary study several years ago with companies like Oracle, IBM, and Salesforce among others, and we saw similar feedback of about 6 to 1 for software spend to hardware spend, over time. People naturally cost more.

Nonetheless, regardless of whether it is 6 to 1 or 8 to 1, both numbers are huge and extremely likely in my opinion in the next 5 to 10 years and Palantir’s (PLTR) Dec quarter earnings hit it out of the park.

Dan Ives said:

Palantir Technologies (NASDAQ:PLTR) and Salesforce (NYSE:CRM) remain the two best software plays on the AI Revolution for 2025.

The firm also recommended other software vendors such as Oracle (ORCL) IBM (IBM), Innodata (INOD) Snowflake (SNOW), MongoDB (MDB), Elastic (ESTC), and Pegasystems (PEGA) enjoying the AI spoils.

Analysts led by Daniel Ives said:

Palantir has been a major focus during the AI Revolution with expanding use cases for its marquee products leading to a larger partner ecosystem with rapidly rising demand across the landscape for enterprise-scale and enterprise-ready generative AI.

Major Growth Expected: The analysts added that this will be a major growth driver for the U.S. Commercial business over the next 12 to 18 months as more enterprises take the AI path with Palantir. They believe “Palantir has a credible path to morph into the next Oracle over the coming decade” with Artificial Intelligence Platform, or AIP, leading the way.

Wedbush’s feedback about budget allocations is very helpful and even if one discounted Dan Ives’ perpetual optimism and bullishness by some, it’s a great indicator that this will be a favored sector in 2025-2028.

Ives and his team have been tracking several large companies that are or are planning to use AI path in 2025 to gauge enterprise AI spending, use cases, and which vendors are separating from the pack in the AI Revolution.

The numbers are gratifying:

Analysts expect that AI now consists of about 10% of many IT budgets for 2025 they are tracking and in some cases up to 15%, as many chief information officers, or CIOs, have accelerated their AI strategy over the next six to nine months as monetization of this key theme is starting to become a reality across many industries.

“While the first steps in AI deployments are around Nvidia (NVDA) chips and the cloud stalwarts, importantly we estimate that for every $1 spent on Nvidia, there is an $8-$10 multiplier across the rest of the tech ecosystem,” said Ives and his team.

What’s more important?

Analysts noted that about 70% of customers they have talked to have accelerated their AI budget dollars and initiatives over the last six months. The analysts added that herein is the huge spending that is now going on in the tech world, with $2T of AI capital expenditure over the next three years fueling this generational tech spending wave.

Hyperscalers indicated supreme confidence in their AI strategy committing in excess of $300Bn in Capex for 2025, which is historic. Amazon’s CEO Any Jassy was categorical in stating AWS doesn’t spend till they’re certain of demand.

Ives had this to add, underscoring Amazon’s confidence.

In addition, Ives and his team said that they are seeing many IT departments focused on foundational hyperscale deployments for AI around Microsoft (MSFT) Amazon (AMZN), and Google (GOOG) (GOOGL) with a focus on software-driven use cases currently underway.

“The AI Software era is now here in our view,” said Ives and his team. Wedbush’s team strongly believes that the broader software space will expand the AI revolution further, cementing what I saw at the CES last month. There is so much computing power available and so many possibilities of use cases exploding that this space could see a major inflection point in 2025-2026.

Large language models, or LLM, and the adoption of generative AI should be a major catalyst for the software sector.

Categories
Cloud Service Providers Enterprise Software Stocks

Oracle Deserves A Seat At The AI Table

Oracle

Oracle (ORCL) $166 is a solid investment opportunity for 3-5 years, with a decent shot at growing data center cloud revenues faster than its other businesses, with a push from AI requirements from clients like Meta. Hyperscalers and cloud service providers are expected to spend a capex of $300Bn in 2025, boosting cloud infrastructure providers such as Oracle.

Oracle’s earnings should grow between 16-18% in the next 3-5 years- and it’s very reasonably priced at 24x forward earnings of $7.05. 

Its 31% GAAP operating margins are another sign of strength, especially for a legacy/mature $52Bn+ tech company. 

Revenues should grow at 12-14% annually in the next 3-4 years, which is impressive for a company of that size. Oracle’s P/S multiple is not expensive at 7X sales.

Oracle Cloud Infrastructure’s robust growth is a big catalyst for the company and the stock, and while the near-term Oracle’s FQ2 double miss disappointed investors, the price drop from $191 has created an opportunity for investors. Besides Oracle could gain market share over time.

Oracle’s modular approach and scalable infrastructure offer cost competitiveness, attracting customers. The company’s ability to scale AI clusters, demonstrated by the deployment of a 65,000 NVIDIA H200 supercomputer and a 336% surge in GPU consumption last quarter, further highlights its appeal.

Furthermore, Oracle’s strengthened partnership with Meta for AI training underscores its attractiveness to both large enterprises and smaller businesses. This reinforces the effectiveness of Oracle’s modular strategy, which aims to provide customers with an improved total cost of ownership (TCO) compared to leading hyperscaler competitors.

Their overall cloud segment is about 55% of revenues and growing at 25%, but the licensing segment has been stagnant for the past two years. Over time this will tilt more decisively towards the cloud, allowing them to either increase or maintain their multiples/valuation.

Categories
Enterprise Software Stocks

Klaviyo (KVYO) $33, Adding More Shares On Declines

Source: Klaviyo

Klaviyo beat earnings and revenue estimates for Q3-24, handily, but it wasn’t enough for the market, which punished the stock 12-15% after hours. 

I would think that the short interest of 11% also had something to do with the fall, as I don’t believe that the stock is priced to perfection or that earnings “disappointed” investors. Klaviyo had been on a tear, rising from $22, at its low in August 2024, and the 80% rise to $40 needed a breather/correction to consolidate before it resumed rising again; The excellent progress in this quarter confirms the longer-term growth trajectory, and the high-quality business model of the company. I believe it is worth buying on declines, and I bought more at $33 this morning,

Sep 24 quarter results: Adjusted EPS beat by 4 cents or 40% coming in at 14 cents against the 10 cents forecast, and revenue of $235Mn beat by $8Mn or 4%. 

Guidance for the next quarter and full year was also raised from the earlier estimate provided. Klaviyo now expects total revenues of $925Mn V $914 at the midpoint and an adjusted operating income of $105, in line with the earlier forecast of $107. Perhaps the market was expecting more here, but this lower operating income is because of an adjustment for higher cash compensation instead of shares, which will be charged in Q4, and going forward accrued in each quarter. 

Management also mentioned that 2025 growth would decelerate slightly from Q3-24 growth of 28%, which is fine, consensus analysts’ estimates have pegged the next year’s growth at 24%, so it is likely that Klaviyo will outperform those estimates. Some of the lower growth projections can also be attributed to 2024 revenues coming higher at $924 than the earlier forecast of $895Mn — the growth projected is on a higher base.

I smoothened analysts’ estimates over 3 years from 2024 to 2026, I still get an annual estimated revenue growth of 27%. Klaviyo is valued at 9.5X 2025 sales. This is a P/S to Growth ratio of 0.35, (9.5/27%), which is relatively moderate. I get antsy when it goes above 0.4, and growth drops a lot. Clearly, that’s not anticipated in Klaviyo’s case. What’s remarkable is that an enterprise software company still grew over 30% in the SMB (Small and Medium Business) category.

Here are some Wall Street ratings.

“Klaviyo reported another solid sales quarter against a macro continuing to drive a soft sales environment that has been offset by strong up-market sales execution,” Needham analyst Scott Berg wrote in a note to clients. “Revenue outperformance of 3.9% was at the midpoint of its post-IPO results over the last five quarters. We expect modest share weakness after the company implements a new comp strategy, shifting some [stock-based compensation] to cash comp that will drive 4Q operating margins lower due to a catch-up accrual. We expect investors will ultimately like this change, as our math suggests it could drive somewhere around 8%-10% less annual share dilution.”

Berg kept his Buy rating on Klaviyo but upped his price target to $46 from $40.

Loop Capital analyst Yun Kim also upped his price target slightly, moving to $45 from $40, as he pointed out the results and its view of the business are “somewhat contrary to increasing signs of a weakening environment (especially for a marketing automation vendor).”

Morgan Stanley analyst Elizabeth Porter also upped her price target slightly, moving to $38 from $32, as she said the 34% revenue growth seen in the third quarter puts Klaviyo in “rare air amongst software vendors.”

Categories
AI Enterprise Software Stocks

Palantir Q3-24: Strikingly Good Results and Raised Guidance

Source:Wikipedia

Palantir Technologies (NYSE: PLTR): Q3 Non-GAAP EPS of $0.10 beats by $0.01.

Revenue of $725.52Mn (+30.0% Y/Y) beats by $21.83M. 30% growth is remarkable, the consensus was for 26-27%.

Big deals increased with Palantir closing 104 deals over $1 million as customer count grew 39% year-over-year and 6% quarter-over-quarter

Operating cash generation was also solid with $420Mn last quarter, at a 58% margin.

Palantir generated an adjusted free cash flow of $435 million, representing a 60% margin and over $1 billion on a trailing twelve-month basis.

Guidance

Q4 Outlook: Revenue of between $767 – $771 million vs. consensus of $744.04M.

At a midpoint of $769Mn, it is $25Mn over the consensus or 3.4% higher – another impressive feat.

Adjusted income from operations of between $298 – $302 million.

One of Palantir’s biggest strengths is its AIP (Artificial Intelligence Platform) Bootcamp sales strategy, which accelerates new customer acquisition, with conversions as fast as 16 days, boosting Palantir’s growth prospects. And from the last quarter’s excellent results, it has come through in spades.

I had recommended Palantir earlier in July 2023 at $17.

2024 Outlook: They raised their revenue guidance to $2.805 – $2.809 billion vs. the prior consensus of $2.76B. At the midpoint, that’s about 2% higher.

Palantir’s growth engine has been its commercial revenue segment, which was raised to more than $687 million, representing a growth rate of at least 50%.

They raised their adjusted income from operations guidance to between $1.054 and $1.058 billion and adjusted free cash flow guidance to more than $1 billion.

Cash Rich: Cash, cash equivalents, and short-term U.S. Treasury securities of $4.6 billion

They continue to expect GAAP operating income and net income in each quarter of this year. Clearly, the markets have been rewarding companies showing a healthy respect for profits over loss-making revenue growth at any cost, and Palantir has done an excellent job staying in the black for two years now.

Not surprisingly, shares are up 11% to $46

My biggest grouse has been Palantir’s valuation. I’ve already done well recommending and buying it for around $17. At a P/S multiple of 28X next year’s revenue of $3.4Bn, growing at 22% — this stock is way too rich for my liking and in the past quarter, I’ve sold twice. I will sell another 10% and hold on to the rest. It’s better to take profits.

Categories
Enterprise Software Stocks

Taking Profits In Palantir (PLTR)

Palantir (PLTR) (Enterprise Software) $32.50 to $33 Sell or take profit. 

Overpriced and the 8% jump on S&P inclusion is over done and unjustified: sell or take profit.

Enterprise software is a tough market as we’ve seen with the likes of Snowflake, and Palantir is completely overpriced at 25 x sales at 22% growth – that cannot sustain.

The enterprise software sector is seeing macro uncertainty. Palantir is an excellent company and perhaps one of the few that is showing AI monetization. Its commercial segment is growing very fast and has an impressive pipeline, however PLTR trades at incredible valuations that are difficult to support even using aggressive assumptions.

I had recommended and bought the stock in the $16-$17 range and don’t see good returns at these levels for the next three years. Even given a generous P/S ratio of 14 for 2028 sales of $6Bn, we get a market cap of $78Bn, just $10Bn more than the current $68Bn – implying a total gain of just 14% in 4 years. Not worth the risk.

Categories
Enterprise Software Stocks

Intuit (INTU)

Intuit (INTU) $620 (Enterprise Software)

Buy on declines and hold, its expensive now but pays off in the longer term.

Intuit has never been cheap, always commanded a premium, so if you don’t get a decent return in the first year, the 5 and 10 year returns have been excellent at 142% and 706%, that’s around 19% and 23% per year.

I owned it for several years before cashing out and didn’t get a chance to buy back

Good growth, solid product line 80+% share of small and medium business accounting with QuickBooks. TurboTax is another market leader with 50% market share in their category.

Credit Karma and Mailchimp round out syngertistic product lines.

They will continue to grow revenues around 12% and earnings around 14% for the next 5 years.

Categories
Enterprise Software Stocks

Snowflake (SNOW) Q1 Earnings Review: Strong Revenue Growth Amidst Mixed EPS Results

Source: Snowflake

Snowflake (SNOW) $171 Up 7% post earnings.

  • Snowflake press release (NYSE: SNOW): Q1 Non-GAAP EPS of $0.14 misses by $0.03.
  • Revenue of $828.71M (+32.9% Y/Y) beats by $42.82M.
  • Product revenue of $789.6 million in the first quarter, representing 34% year-over-year growth
  • Net revenue retention rate of 128% – This is great.
  • 485 customers with trailing 12-month product revenue greater than $1 million
  • 709 Forbes Global 2000 customers
  • Remaining performance obligations of $5.0 billion, representing 46% year-over-year growth. – This is another good sign. Growing faster than revenue growth.
  • Q2 Outlook: Product revenue $805m – $810M; Operating income margin 3%.
  • 2025 Outlook: Product revenue $3,300M; Operating income margin 3%; Adjusted free cash flow margin 26% – Good cash flow margin.
Categories
Enterprise Software Stocks

Confluent’s Strong Earnings Report: A Step Toward Profitability

Confluent (CFLT) Post Market $30.50 up 8%.

Confluent delivered better-than-expected results for the March quarter, with beats on revenue and adjusted earnings.

Adjusted Earnings came in at $0.05 per share against the $0.02 estimated and revenue at $217 v $211 expected.

Guidance was raised slightly in Q2 and FY 2024 as under:

Adjusted earnings – $0.04 to $0.05 V consensus of $0.04

Revenue $229-$230 v $229.3 expected. Growth 21.5%

EPS $0.19 to $0.20 v $0.18 consensus estimates

$957Mn revenue V $ 952.8 estimated – Growth of 23%

Confluent is swinging from adjusted losses into positive territory as promised to investors, though still far from GAAP profits, which would take at least two years.

Growth momentum remains, and I last accumulated at $28-29, which I plan to continue doing.

Will update further after the call.

Categories
Enterprise Software Stocks

Palantir (PLTR) Earnings Beat Expectations: A Strong Quarter Amidst Stock Decline

Source: Lord Of The Enterprise

Palantir (PLTR) Post Market down 6% but solid earnings and revenue beat and improved guidance.

Rev – $634Mn up 21% beats $615Mn consensus

Adjusted Operating income $226Mn beats forecast of $196-$200Mn

For the full year, Palantir lifted its revenue guidance to between $2.677 billion and $2.689 billion, above the previous range of $2.652 billion to $2.668 billion

Adjusted EPS – $0.08 per share in line with estimates

Palantir PLTR 8.06% followed up its “bombastic” December quarter with even better results for the March quarter as the data analytics software company continued to gain traction with its artificial intelligence tools in particular with U.S. commercial customers.

Nonetheless, the stock is losing ground following the announcement. Palantir shares, which rallied 8.1% in Monday’s regular session, was off more than 7% in late trading, leaving the stock up slightly from Friday’s close. The stock was up 47% this year as of Monday’s closing bell.

For the March quarter, Palantir posted revenue of $634 million, up 21% from a year ago, and ahead of both the company’s guidance range of $612 million to $616 million and Wall Street’s consensus of $615 million as tracked by FactSet.

Adjusted operating income was $226 million, well ahead of Palantir’s forecast of $196 million to $200 million. Adjusted profit was 8 cents a share, in line with Street estimates. Under generally accepted accounting principles, the company earned 4 cents a share.

Palantir gained impressive traction with U.S. commercial customers. That segment of the business grew 40% from a year ago and 14% sequentially to $150 million. Overall, commercial business was $299 million, up 27% and ahead of consensus at $292 million. Palantir said that the U.S. commercial business grew 69% year over year if you back out the contribution from customers where Palantir had made strategic investments a few years ago in a now-suspended program tied to SPAC-related IPOs.

Palantir said “remaining deal value” for U.S. commercial customers grew 74% from a year earlier and 14% sequentially. The total number of signed deals in the quarter increased 52% year over year for the quarter overall, including a 94% increase in U.S. commercial deals, Palantir reported.

Meanwhile, government segment revenue was $335 million, up 16% from a year ago, ahead of consensus at $322 million, and an acceleration from 11% growth in the December quarter.

“America is adopting technology and especially AI in a way no other part of the world is,” CEO Alex Karp said in an interview with Barron’s. “We are the only company providing the right infrastructure to make LLMs [large language models] actually valuable,” noting that the company is adopting a tagline of “beyond chat” for its AI business.

“We have a vibrancy of our tech and corporate scene that no one else has,” he said. “And as important as it is for Palantir, it’s going to change the GDP trajectory of America.” In the long run, he said the strongest players in AI will be in the U.S. and Middle East, with Europe “closing its eyes and hoping the nightmare will end.”

Palantir also provided strong guidance. For the June quarter, the company sees revenue of between $649 million and $653 million, ahead of consensus at $643 million, with adjusted operating income of between $209 million and $213 million, above the Street at $201 million.

For the full year, Palantir lifted its revenue guidance to between $2.677 billion and $2.689 billion, above the previous range of $2.652 billion to $2.668 billion. The company now sees U.S. commercial business for the year of above $661 million, up at least 45%; the previous guidance had called for 40% growth in that segment. Palantir also boosted its adjusted operating income guidance to between $868 million and $880 million from a previous forecast of $834 million to $850 million.

Categories
Enterprise Software

Rubrik’s IPO: Evaluating the Potential of a Microsoft-Backed SaaS Player in Data Security

Rubrik’s IPO is priced at $32 per share. Microsoft is backing this company.

SaaS business – data and data-centric security – this is a growing business with overall industry growth in the low twenties, from migration of on-prem to cloud.

Co-founder is Ex Nutanix

Company-wide revenue growth was only 5%, and the company is still in an early growth stage to have decent profitability but has shown a lot of promise with declining losses last year. Sales and marketing expenses take away a lot of revenue – they’ll need to keep this high to convert pure license customers to SaaS customers, at least 2-3 years.

Net Retention Rate at 133% is good for SaaS customers but this number drops over total revenue because of the large license revenue base.

A lot of big competitors in this industry, including Dell EMC and IBM.

Overall, given the slowing revenue growth, I would prefer to wait. I suspect the valuation is coming in too hot at an estimated 8x sales without the growth. Let’s keep an eye out, it has promise but I think we’ll need a better price.