Software Stocks Show Potential for Growth Amid Market Sell-off
As of now, the S&P 500 has dropped approximately 6.5% year-to-date, with the Nasdaq Composite down nearly 10%. This downturn has particularly affected technology stocks, but analysts are still optimistic about companies like ServiceNow (NYSE: NOW) and Microsoft (NASDAQ: MSFT). Both stocks currently trade below their historical valuation multiples, with Wall Street forecasting at least a 60% upside for each company.
ServiceNow’s stock has fallen 58% from its highs, yet 42 out of 46 analysts maintain a ‘buy’ rating, projecting an average price target of $188, indicating a potential 80% upside. Last quarter, ServiceNow reported over $2 billion in free cash flow from total revenue of $3.5 billion, reflecting a strong 21% increase in subscription revenue year-over-year.
Similarly, Microsoft is down 35% from its highs but has a robust outlook with an average price target of $589, suggesting a 63% upside. In its most recent quarter, Microsoft Cloud revenue grew by 26% year-over-year, demonstrating strong demand, particularly for AI-driven features. The company trades around 22 times this year’s earnings estimate, below its three-year average of 31, signaling potential for recovery.
