Software is rapidly reducing operating expenses for businesses. Companies bringing it to life have been rewarded with explosive earnings growth, and the upward trend shows no signs of stopping as the industry has posted a 13.5% gain over the past six months, beating the S&P 500 by 8.6 percentage points.
Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. Keeping that in mind, here is one resilient software stock at the top of our wish list and two we would avoid.
Two Software Stocks to Sell:
MongoDB (MDB)
Market Cap: $26.21 billion
Named after "humongous database," reflecting its ability to handle massive data loads, MongoDB (NASDAQ:MDB) provides a flexible document-based database platform that helps developers build, deploy, and maintain modern applications more efficiently.
Why Does MDB Fall Short?
- Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
- Free cash flow margin is forecasted to shrink by 4 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $327.48 per share, MongoDB trades at 8.5x forward price-to-sales. Check out our free in-depth research report to learn more about why MDB doesn’t pass our bar.
Paychex (PAYX)
Market Cap: $41.38 billion
Once known as the go-to service for small business payroll needs, Paychex (NASDAQ:PAYX) provides payroll processing, HR services, employee benefits administration, and insurance solutions to small and medium-sized businesses.
Why Does PAYX Give Us Pause?
- 9.9% annual revenue growth over the last five years was slower than its software peers
- Estimated sales growth of 5.4% for the next 12 months implies demand will slow from its two-year trend
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 1.1 percentage points
Paychex’s stock price of $116.28 implies a valuation ratio of 6.4x forward price-to-sales. To fully understand why you should be careful with PAYX, check out our full research report (it’s free).
One Software Stock to Buy:
AppLovin (APP)
Market Cap: $135.7 billion
Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ:APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.
What Makes APP Stand Out?
- Annual revenue growth of 30.4% over the last two years was superb and indicates its market share is rising
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- APP is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
AppLovin is trading at $401.10 per share, or 15.3x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
ONE MORE THING: Top 6 Stocks for This Week. This market is separating quality stocks from expensive ones fast. AI is taking down whole sectors with no warning. In a rotation this fast, you need more than a list of good companies.
Our AI system flagged Palantir before it ran 1,662% between October 2022 and February 2026. AppLovin before it ran 753% between February 2024 and February 2026. Nvidia before it ran 1,178% between January 2023 and February 2026. Each week it produces 6 new names that pass the same tests. Get Our Top 6 Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.