Microsoft and more big software names look to grow in 2025 on AI monetization: Stifel

Microsoft (NASDAQ:MSFT), ServiceNow (NYSE:NOW) and an array of other software firms should prosper in 2025 due to a combination of monetizing artificial intelligence, declining interest rates on top of economic growth and limited exposure to China, according to Stifel.

“We note that after a strong CY23 that saw accelerating revenue growth on the heels of easy comps over the course of the year, peaking at ~15%, 2024 revenue growth bottomed in 2Q at 11.8%, but accelerated 150 bps to 13.3% in 3Q,” said Stifel analysts, led by Brad Reback, in an in-depth 2025 software preview. “While current estimates call for a 4Q deceleration to ~11%, given normal seasonal spending patterns and management guidance conservatism, we envision ~300 bps of upside to these forecasts.”

“Looking forward, we expect management teams to take a more conservative approach to 1Q guidance, but overall we believe that in general top-line growth rates should at least mirror what we have seen during the back half of 2024 due to many of the above mentioned factors (AI, economy, rates) providing incremental tailwinds for the group,” he added.

As a result, Stifel increased the price targets on a wide range of software stocks.

Microsoft was bumped up to $525 from $500 while ServiceNow was hiked to $1,175 from $990.

CyberArk (NASDAQ:CYBR) was boosted to $370 from $335 as Stifel believes the Israel-based software-as-a-service security firm can sustain 20%-plus revenue growth and expanding operating margin and free cash flow in the years ahead.

Fellow cybersecurity firm Fortinet’s (NASDAQ:FTNT) price target edged up to $103 from $90 as it is expected to achieve double-digit top-line growth in 2025 and beyond.

Datadog’s (NASDAQ:DDOG) price target increased to $165 from $141 due to low to mid 20% revenue growth on contributions from generative AI.

Twilio’s (NYSE:TWLO) price target was bumped to $110 from $80 as the stock has rebounded from June lows and “new CEO Khozema Shipchandler and the team have the opportunity to provide a mid-to-long-term framework for growth and margins.” The company also a close partnership with OpenAI, which prove to be an AI driver looking ahead.

Enfusion (NYSE:ENFN) was nudged to $13 from $11 as new product launches are expected to increase back book growth by 3% to 5%.