Unlocking AI Potential: UBS Identifies Software Stocks with 30% Upside, Primed for Maximizing Artificial Intelligence

Investing / Thursday, 09 November 2023 03:54

"UBS Identifies Hidden Gems: Four Software Stocks Set to Maximize AI with 30% Upside

In the midst of the artificial intelligence (AI) surge on Wall Street, UBS has pinpointed potential winners that are flying under the radar. The bank recently initiated coverage on four lesser-known names, granting buy ratings to Clearwater Analytics, Intapp, SS & C Technologies, and Thomson Reuters. Analyst Kevin McVeigh's optimistic outlook is underscored by a 30% or more upside for three of these stocks.

McVeigh highlights the impact of rate-fueled multiple compression, providing investors an opportune entry point into high-quality, mission-critical software businesses with total addressable markets (TAMs) experiencing low double-digit growth. He emphasizes that the emergence of specialized players in the technology services software industry has spurred increased merger and acquisition activity, mitigating downside risks in certain cases.

The analyst observes a rising trend of vertical solutions in AI implementation, as niche-specific data is leveraged by vertical players to create fortified solutions and domain-specific models. This approach aligns with best-in-class models, signaling a strategic evolution within the AI landscape.

AI's transformative influence has been particularly evident in the stock market in 2023, with tech-related companies enjoying significant outperformance. Notably, chipmaker Nvidia boasts a remarkable year-to-date increase of over 200%. McVeigh believes that Clearwater Analytics, a software-as-a-service provider, has the potential for more than a 32% upside, despite its modest movement since the beginning of the year. He sees Clearwater Analytics as a disruptive and vertically integrated platform poised for substantial benefits, with opportunities for cross-sell, upsell, and increased sales productivity.

Cloud-based software provider Intapp, despite a 43% rally year-to-date, is also viewed by McVeigh as having over 30% upside potential. He sees Intapp as a 'beat-and-raise' story, projecting growth in new verticals and anticipating advantages from operating leverage with its land-and-expand and word-of-mouth growth strategies.

Specializing in providing software to the financial industry, SS & C Technologies is predicted to rally close to 39%, driven by increasing data use cases within financial services. McVeigh underscores the firm's well-positioned and predictable model, coupled with constructive fundamentals, as factors propelling consistent organic revenue growth.

Lastly, Thomson Reuters rounds out the list of buy-rated names, although McVeigh predicts a slightly more modest 18% upside for the stock. As these software stocks chart a course to maximize AI, investors may find these recommendations a strategic compass in navigating the dynamic landscape of the evolving technology sector."

"In the rapidly evolving landscape of artificial intelligence and technology, UBS's identification of lesser-known software stocks with substantial upside potential offers investors a strategic lens into maximizing AI trends. As Wall Street continues to be swept by the AI boom, the four highlighted companies—Clearwater Analytics, Intapp, SS & C Technologies, and Thomson Reuters—emerge as hidden gems with promising trajectories.

The analyst's insight into the interplay of rate-fueled multiple compression, niche-specific data utilization, and the increasing trend of vertical solutions in AI implementation provides a nuanced understanding of the factors influencing these stocks. As the industry experiences heightened merger and acquisition activities, the potential for minimized downside risks becomes a notable aspect for investors to consider.

The transformative impact of AI on the broader stock market, exemplified by the outstanding performance of tech-related companies, underscores the significance of these recommendations. From Clearwater Analytics' disruptive potential to Intapp's 'beat-and-raise' narrative, and SS & C Technologies' poised growth in financial services, each stock carries a unique narrative within the overarching theme of maximizing AI.

While the forecasted upsides range from 18% to over 30%, the strategic insights provided by UBS and analyst Kevin McVeigh illuminate the hidden opportunities within the AI-driven software landscape. These recommendations not only serve as a guide for investors navigating the current market dynamics but also highlight the ongoing paradigm shift in the technology sector, where innovation and strategic positioning play pivotal roles in shaping the future."