Adobe Systems (ADBE), ServiceNow (NOW), Salesforce.com (CRM) and other top software stocks gained on Thursday as some found support at their 200-day moving average, aiming to claw back from a broad sell-off in technology stocks.
While the FANG stocks — Facebook (FB), Amazon.com (AMZN), Netflix (NFLX) and Google (GOOGL) — have weakened since the summer, software makers have been hammered amid the October sell-off in technology stocks.
IBD’s Computer-Software Enterprise industry group has dived nearly 18% since Sept. 14 as of Wednesday’s market close. Software companies had been among the stock market’s top gainers in 2018. Some analysts had voiced valuation concerns amid the run-up.
Morgan Stanley, in a report published on Thursday, says software stocks could be volatile when companies report September-quarter earnings. Billings, a sales growth metric, as well as operating margins, are key financial metrics.
Upcoming Earnings Reports Leave Little Room For Error
“Software seems to be priced for perfection, although margin risk is low,” the report said.
Strong corporate spending on digital projects amid a strong economy has been a plus for software makers.
“Software has cyclical exposure given its dependence on business confidence, capital spending, upselling and seat growth,” Morgan Stanley said.
Most top software stocks have a software-as-a-service, or SaaS, business model. They sell software subscriptions rather than licenses. They provide on-demand software via the internet cloud.
Amid this week’s technology sell-off, ServiceNow stock was down 16% from an intraday high of 206 set on Sept. 13. Adobe stock fell 13% from a high of 277 set on Oct. 2. Salesforce.com stock had declined 14% from a high of 160 on Sept. 27.
Shares of Adobe, Salesforce.com and ServiceNow found support near or at their 200-day moving average on Thursday.
Software Stocks In IBD 50
Some top software stocks in the IBD 50 roster of fast-growing companies also gained on Thursday.
While software stocks have been hammered, the FANG stocks are also bloodied. Facebook has dived 29% from late July, while Alphabet’s Google has shed 13%. Netflix is down 22% from early July. Amazon has lost 15% since the start of October. Amazon and Netflix slipped Thursday, while Google and Facebook were up.
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