Piper Sandler analysts tweaked their ratings for a number of application software-based stocks in a note Tuesday, stating they would enter 2024 with a higher degree of optimism.
The firm upgraded shares of nCino, Inc. (NCNO) and Weave Communications (WEAV) to Overweight from Neutral, downgraded AvidXchange Holdings (AVDX) to Neutral from Overweight, and cut Unity Software Inc. (U) and Blackline Inc. (BL) to Underweight from Neutral.
The higher degree of optimism is based on stabilizing demand fundamentals after two years of moderation, a declining interest rate backdrop sparking greater appetite for growth stocks, new secular tailwinds for cloud, and data-driven by a generational shift to AI, CIO survey optimism showing accelerating cloud and AI spending intentions, and favorable risk-reward scenarios on 2025 metrics.
Piper Sandler said the key themes that we plan to closely track in 2024 include the cloud recovery, data renaissance with database and AI-enabling software tools gaining importance, scarcity value for high growth, value in vertical software with favorable risk-reward profiles, and agents that could go mainstream in 2024, similar to ChatGPT adoption in 2023.
Piper Sandler noted that investor optimism has also risen, with its coverage list up 61% in 2023 compared to 24% for the S&P 500.