As the earnings season arrives, Mizuho’s industry checks show that the software sector as a whole should demonstrate better-than-expected growth during the third quarter.
“Our 3Q checks were very solid overall,” said Mizuho analysts, led by Gregg Moskowitz, in an in-depth investor report. “Public cloud/consumption data points were quite good, and AI adoption remains very strong. Cybersecurity demand was fairly healthy, albeit with some reports of deal slippage. Finally, SaaS was resilient, and appeared to improve somewhat in one or two areas.”
The software companies that appear the strongest to Mizuho heading into earnings include Microsoft (NASDAQ:MSFT) with a new price target of $640 from $625, Datadog (NASDAQ:DDOG) with a new target of $170 from $155, Palo Alto Networks (NASDAQ:PANW) to $220 from $210, and CyberArk (NASDAQ:CYBR), which is in the process of being acquired by Palo Alto, to $520 from $500. All these stocks have Outperform ratings as well. Mizuho also expects solid results from Atlassian (NASDAQ:TEAM), which has a $235 price target and Outperform rating.
“Our 3Q sector revenue estimates call for ~3% Q/Q median growth and 18% Y/Y,” Moskowitz noted. “Sequentially, this is about 3 points below the Q/Q growth in last two 3Q periods. From a currency perspective, the USD depreciated another 3 points vs. the EUR sequentially, and 1 point vs. the GBP, although much of this occurred before management teams guided. As a result, we expect only a slight incremental currency tailwind for 3Q. And all in all, we expect decent upside to our revenue estimates on average.”
“Our checks on TEAM upticked this quarter, including slight improvement in cloud migration activity, and we’re optimistic that the company can deliver a good overall F1Q,” he added. “Our MSFT Azure checks were very good, and we’re expecting to see Azure growth above the company’s ~37% Y/Y CC guidance.”