The software sector has been booming in recent years, as businesses move more and more of their office work into the digital realm. E-commerce, data management, networking, and security systems are proving particularly popular. Cloud computing, too, is finding strong support, as it offers subscription customers a combination of cost reductions and platform flexibility.
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The upshot of this popularity is that the software market is expected to post solid growth over the next several years. According to technavio, by 2029, the sector is expected to expand by more than $30 billion, achieving a compound annual growth rate of 8.2%. Meanwhile, the North American share of the software market is expected to contribute an estimated 45% of that global growth.
With that as backdrop, Raymond James analyst Mark Cash has been looking into the software industry for solid investment choices. He sees strong growth ahead for two software stocks in particular and has tagged them as potential winners for the year ahead.
According to the TipRanks database, both stocks have Buy ratings from the broader Wall Street consensus, along with solid upside potential. Let’s give them a closer look.
JFrog(FROG)
We’ll start with JFrog, a software firm that focuses on development and IT operations, DevOps, providing its users with a platform designed to enable a fast, seamless workflow from the developer’s desk to the end-use device. The company’s goal is to automate processes in DevOps, SecOps, and IoT, to create a world in which new software updates arrive quickly and continuously.
JFrog has been in business since 2008 and finished 2024 with some 7,300 unique customers on the books. These customers use the JFrog toolkit across a wide range of software technologies, in every conceivable field of endeavor – we should note here that a majority of the Fortune 100 firms use JFrog’s software, and that the company counts millions of users worldwide.
The success and popularity of JFrog’s cloud-based DevOps platform can be seen in the company’s metrics on annual recurring revenue, ARR. At the end of 2024, JFrog boasted 1,018 customers with more than $100,000 ARR; of that total 52 had an ARR of more than $1 million. These customer-total figures were up year-over-year from 886 and 37.
Turning to the company’s financial results, which were last reported for Q4 and full-year 2024, we find that JFrog saw $116.1 million in revenue for 4Q24, up 19% from the prior-year period and $1.84 million better than had been anticipated. The company’s non-GAAP EPS figure, of 19 cents, was 5 cents per share better than the forecast.
In some additional metrics that bode well for JFrog, the company realized a quarterly operating cash flow of $49.1 million, of which $48.5 million was listed as free cash flow, and finished the quarter and year with $522 million in cash and other liquid assets. Looking forward, JFrog had a work backlog (remaining performance obligations) of $403.1 million.
All of this – the company’s sound foundation, its potential to expand, and its strong cash generation and reserves – caught the attention of Mark Cash. In his write-up of the stock for Raymond James, Cash says, “We think FROG can offer long-term value appreciation as the company’s DevSecOps and MLOps platform is embraced to help organizations consolidate various tools into a holistic solution. We believe JFrog has an ample and expanding TAM that provides opportunities for multiple vendors offering solutions that enhance productivity and security for software development/management. As the company’s growth profile matures, we expect its platform can keep customers within its ecosystem/expand into adjacencies and create durable free cash flow.”
The analyst goes on to rate FROG shares as Outperform (i.e., Buy), with a $40 price target that implies a one-year upside potential of 28%.
Overall, JFrog has picked up 17 recent analyst reviews, with a 15 to 2 split favoring Buy over Hold and supporting a Strong Buy consensus rating. The shares are currently trading for $31.26 and their $43.29 average price target, even more bullish than the Raymond James view, suggests a gain of 38.5% on the one-year horizon. (See FROG stock forecast)
Confluent, Inc.(CFLT)
The next stock we’ll look at here, Confluent, has an interesting history. The company was founded in 2014, and was designed specifically to build on and commercialize the open-source Apache Kafka data platform. In its commercial form, Confluent gives its users a fully scalable data streaming platform (DSP), designed to stream, connect, process, and govern data, turning what the company calls a ‘spaghetti mess’ of data points and connections into a usable, moving, data stream.
Confluent’s DSP was developed to work in real time, across a wide range of end uses. The platform lets retailers build inventory systems, banks build fraud detections, manufacturers collect assembly line diagnostics – the possibilities are nearly endless, as virtually every facet of the modern economy depends on real-time data management and use. Confluent’s platform is cloud-native, and designed to facilitate business data applications in a digital world.
The company released its financial results for Q4 and full-year 2024 this past February, and the numbers show a rising revenue trend and ongoing profitability. Confluent saw a top line of $261.2 million in 4Q24, beating the forecast by $4.32 million and growing 22.5% year-over-year. At the bottom line, the company’s EPS came to 9 cents by non-GAAP measures, 3 cents per share better than expected.
Confluent reported 1,381 customers with at least $100,000 ARR at the end of Q4, up 12% from the prior-year period. Subscription revenue in Q4 came to $251 million, up 24% year-over-year, and Cloud Revenue, at $138 million, was up 38% y/y. We should note that there is significant overlap between the Subscription and Cloud revenue categories.
For Raymond James’s Cash, Confluent presents investors with an opportunity to buy into a stock with solid long-term prospects. He is impressed by the company’s ability to increase its niche in the data business, and writes, “We believe CFLT can offer long-term value appreciation as a rare asset focused on data streaming and associated real-time data needs for organizations. We believe it has an ample and expanding TAM as the use cases for real time data are increasing with the sheer growth in data/cloud usage and AI/agentic solutions. We believe Confluent’s data streaming platform can drive high customer switching costs as organizations’ internal operations and external differentiation is reliant on its platform. Confluent has various growth drivers that can drive durable free cash flow, in our view.”
Cash goes on to put an Outperform (i.e., Buy) rating here, and his price target, set at $30, points toward a one-year share gain of 39.5%.
Confluent’s Moderate Buy consensus rating is based on 29 reviews from the Wall Street analysts, with a breakdown of 21 Buys, 7 Holds, and 1 Sell. The stock is currently trading for $21.50, and its $36.85 average price target suggests a robust 71.5% one-year upside potential. (See CFLT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
