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Cloud computing is creating a "radical change" throughout technology, according to Joel Fishbein of BTIG.
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Fishbein added Enterprise software spending will outpace overall IT spending over the next five years
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Fishbein recommends buying a "handful" of tech companies, rather than owning the entire group.
In a report published Monday, BTIG analyst Joel Fishbein initiated coverage of the entire Software sector, noting that we are in the "early innings" of a multi-year software growth cycle.
According to Fishbein, Enterprise software spending is set to rise over the next five years, approaching nearly $400 billion by 2019. The analyst added that the group will benefit as customers continue switching from on premise to on-demand services that are accessible anywhere.
Meanwhile, cloud computing continues to create "radical change" throughout the entire technology space by changing the way people communicate, connect and work.
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With that said, the disruption (which is already underway) creates new opportunities for businesses to grab share. Naturally, this implies opportunities for investors looking for exposure to the space.
"For investors, enterprise software has been a story of haves and have-nots," Fishbein wrote. "There is a stark difference between high-growth, richly valued secular share gainers and legacy players potentially representing value opportunities. We are bullish on the underlying trends and believers in software as the main agent of change in enterprises, but think too many investors are chasing too few stories."
Fishbein is recommending investors utilize a "selective approach" of buying "a handful" of secular tech stories rather than owning the entire group.
The following companies were initiated with a Buy rating:
On-Demand/Software-as-a-Service: Demandware Inc (NYSE: DWRE) ($70 price target), salesforce.com, inc. (NYSE: CRM) ($88 price target), ServiceNow Inc (NYSE: NOW) ($85 price target), and Workday Inc (NYSE: WDAY) ($92 price target).
Infrastructure Software: (CommVault Systems, Inc. (NASDAQ: CVLT) ($48 price target), Oracle Corporation (NYSE: ORCL) ($44 price target), and Red Hat Inc (NYSE: RHT) ($58 price target).
Security: Barracuda Networks Inc (NYSE: CUDA) ($35 price target), Imperva Inc (NYSE: IMPV) ($72 price target), Palo Alto Networks Inc (NYSE: PANW) ($210 price target), and Proofpoint Inc (NASDAQ: PFPT) ($72 price target).
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