Software is eating the world, and virtually no business is left untouched by it. The undeniable tailwinds fueling the industry have also led to strong returns for SaaS stocks lately as they’ve gained 48.1% over the past six months, outpacing the S&P 500’s 13.1% rise.
Although these businesses have produced results, only the best will survive over the long term as AI is eating into the profits of those with lower switching costs. Taking that into account, here are two resilient software stocks at the top of our wish list and one that may face trouble.
One Software Stock to Sell:
Paycom (PAYC)
Market Cap: $9.90 billion
Pioneering the concept of employees doing their own payroll with its "Beti" technology, Paycom (NYSE: PAYC) provides cloud-based human capital management software that helps businesses manage the entire employment lifecycle from recruitment to retirement.
Why Does PAYC Worry Us?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 9% underwhelmed
- Estimated sales growth of 7% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Paycom is trading at $214.26 per share, or 4.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PAYC.
Two Software Stocks to Buy:
Microsoft (MSFT)
Market Cap: $3.69 trillion
Originally named "Micro-soft" for microcomputer software when founded in 1975, Microsoft (NASDAQ: MSFT) is a global technology company that develops software, cloud services, devices, and AI solutions for consumers, businesses, and organizations worldwide.
Why Is MSFT a Good Business?
- Microsoft is one of the great brands not just in tech but all of business. It produces mission-critical software and bundles it together, resulting in cream-of-the-crop gross margins.
- The company’s elite unit economics lead to robust profit margins that improve over time. This speaks to the scale advantages and operating efficiency across its diverse portfolio, which spans everything from Office and Azure to Minecraft.
- Microsoft has a virtuous cycle of returns. Its dominant market position enables it to generate strong free cash flow, and it reinvests these funds into promising ventures that further strengthen its competitive moat.
Microsoft’s stock price of $495.70 implies a valuation ratio of 25.1x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Guidewire Software (GWRE)
Market Cap: $15.2 billion
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Why Should You Buy GWRE?
- Billings growth has averaged 20.6% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
- Healthy operating margin of 8.2% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs
At $183 per share, Guidewire Software trades at 9x forward price-to-sales. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
