As the artificial intelligence boom fuels the growth of chipmakers such as Broadcom and Nvidia, investors should also consider software companies with strong fundamentals despite high interest rates. Canaccord Genuity screened about 147 software companies, and only four companies expected revenue growth of 25% or more in the next 12 months and free cash flow (FCF) margins to increase by at least 50% in the past 12 months. Here are some of Canaccord’s “best of both worlds” options: GitLab is one of the four top names on the list. The company’s incremental free cash flow margin over the past 12 months was approximately 93%, and its forecast growth rate over the next 12 months is 25%. Although the stock has fallen nearly 16% this year, Canaccord expects future growth. Citing Yahoo’s ability to continue generating revenue growth, the investment bank expects operating leverage to be achieved as the company “expands into large software deployment markets.” Cannacord has a $65 price target on GitLab, which implies an upside of about 22% from Monday’s closing price. Monday.com is known as one of the premium brands on the Canaccord screen, with a trailing incremental FCF margin of 91% and projected revenue growth of 28%. Canaccord cited high non-GAAP gross margins, durable growth and healthy free cash flow leverage over the past 12 months as drivers of Monday’s “best-in-class” incremental free cash flow. Canaccord said the stock currently trades at 9.3 times 2025 enterprise value to revenue and 38 times enterprise value to FCF, and will rise 30% by 2024. Growth will continue as “high-end market momentum” and newly announced pricing plans have yet to have an impact on growth. Elsewhere on Wall Street, Barclays is also bullish on Monday.com and recently initiated an overweight rating on the stock. Barclays’ price target of $275 implies an upside of about 11% from the last close. SentinelOne also appears at the top of the Canaccord screen, with a tracking incremental FCF of approximately 89% and expected revenue growth of approximately 28%. Canaccord sees SentinelOne as a “long-term long-term winner” as the company positions itself as a data-driven security platform. Canaccord has a buy rating on the stock and a $23 price target, implying an upside of about 13%. The stock has fallen about 26% in 2024.
