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Investing.com -- Mizuho sees opportunity in select software names ahead of first-quarter earnings, despite a challenging backdrop marked by valuation pressure and rising uncertainty.
In its software EPS preview, Mizuho said “1Q checks were solid overall,” with public cloud and consumption trends “generally good” and “AI adoption… very strong,” although it noted cybersecurity demand was mixed.
The bank added that “SaaS continues to be resilient,” even as investor concerns around AI disruption have “decimate[d] many software company multiples.”
Valuations have reset significantly, with Mizuho highlighting that “NTM EV/Sales multiples are currently a large 40% below three-year average levels.” While the firm acknowledged “a higher level of unpredictability” and “a particularly rocky path,” it said “the risk/reward [is] quite attractive” over the next twelve months.
Against this backdrop, Mizuho named three preferred stocks into earnings: Cloudflare, ServiceNow, and Atlassian.
“Our favorite March-ending stocks to own ahead of the print are NET, NOW, and TEAM,” the analysts said.
For Cloudflare, Mizuho said “checks were favorable once again,” adding it expects “another quarter of good revenue upside” and views the recent 13% selloff as “overdone.”
On ServiceNow, it said checks were “decent,” but “good enough for the company to show solid 1Q constant currency cRPO upside versus guidance,” while noting the stock “currently trades at only ~12x CY27E FCF.”
For Atlassian, despite mixed checks, Mizuho notes they were still notably better than some competitor checks. The firm expects “meaningful subscription revenue acceleration for a second consecutive quarter” from the company.