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On Thursday, RBC Capital Markets highlighted potential investment opportunities in the software sector following a significant market downturn due to new tariff announcements. The market decline led the IGV, an ETF tracking the industry, to fall by 5%. RBC Capital analysts identified several software stocks as attractive buys amid the weakness, including Cloudflare (NYSE:NET), CyberArk Software (NASDAQ:CYBR), GitLab (NASDAQ:GTLB), Guidewire Software (NYSE:GWRE), HubSpot (NYSE:HUBS), MongoDB (NASDAQ:MDB), ServiceNow (NYSE:NOW), and Snowflake (NYSE:SNOW). Among these, Guidewire Software has shown remarkable strength with a 60% return over the past year and maintains a "GOOD" financial health rating according to InvestingPro analysis.
The analysts at RBC Capital emphasized that while the software industry is relatively insulated from tariffs, there are still second-derivative risks that could affect companies in the sector. These risks include the potential for longer sales cycles, smaller deal sizes, and deprioritization of projects due to the uncertainty created by tariffs. Additionally, the end customers of software companies in industries like manufacturing and consumer products may be directly impacted by tariffs, potentially leading to a shift in their focus away from software projects.
RBC Capital further cautioned that the rhetoric surrounding tariffs could pose reputational risks for software companies, affecting their win rates and market shares. Moreover, there is a concern that tariffs could trigger a broader economic recession.
Despite these risks, RBC Capital sees several companies as particularly well-positioned. They believe Cloudflare’s defensive nature and high concentration of U.S. revenue, CyberArk’s focus on cybersecurity, GitLab’s multiple growth drivers, and Guidewire’s defensive stance make them strong candidates for investment. HubSpot’s customer base of U.S. businesses is thought to be somewhat shielded from direct tariff impacts, while MongoDB’s mission-critical software, ServiceNow’s enterprise automation solutions, and Snowflake’s multiple catalysts are also seen as providing a solid foundation during uncertain times.
RBC Capital’s strategy suggests that the recent pullback in these stocks presents an opportunity for investors to enter at a more favorable point, with the expectation that these companies have the resilience and strategic positioning to weather tariff-related challenges.
In other recent news, Guidewire Software has reported strong financial results for its second fiscal quarter, with total revenue, Annual Recurring Revenue (ARR), and Non-GAAP operating income surpassing expectations. The company successfully closed 12 cloud deals, including five with new customers, marking an increase from the previous year. Following these results, Guidewire has revised its financial forecasts for fiscal 2025, raising the midpoints for total revenue, ARR, and Non-GAAP operating income. In a strategic move, Guidewire announced the acquisition of Quantee, a Polish InsurTech startup, aiming to enhance its insurance pricing capabilities. This acquisition is expected to bring product innovation and talent to Guidewire, aligning with its broader strategy in the InsurTech landscape.
Analysts have responded positively to these developments, with JMP Securities maintaining a Market Outperform rating and a $250 price target, while DA Davidson and Stifel have both reiterated Buy ratings with price targets of $226 and $230, respectively. Raymond (NSE:RYMD) James also maintained an Outperform rating with a $225 target, highlighting Guidewire’s strong market position and cloud momentum. However, Goldman Sachs adjusted its price target to $235 from $240, maintaining a Buy rating, and noted the company’s potential for long-term market share gains despite a slightly below-consensus third-quarter ARR guidance. These recent developments reflect Guidewire’s strategic focus on cloud-based services and its efforts to solidify its position in the property and casualty insurance market.
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