In this article, we will take a look at some of the most profitable software stocks to invest in.
These days, with everything being driven by technology, everyone is seeking stocks that benefit most from artificial intelligence, automation, and cybersecurity advancements. We have seen how the software industry has repeatedly proven to be the backbone of not just one but many other industries, as it redefines how the overall economy operates and communicates.
Despite the technology sector’s short-term volatility, Terry Sandven, chief equity strategist with U.S. Bank Asset Management Group, remains confident about the sector’s long-term prospects. He believes companies pursue growth, and this growth is achieved through investments in technology, rather than through the recruitment of new people. As he states,
“Data fuels AI. Companies involved in chip design, data capture, storage & processing, software & analytics, security, and the electrification of data centers, seem particularly well-positioned for longer-term growth.”
The outperformance of the technology sector, primarily led by software, isn’t something hidden. A testament to its long-term outperformance is the finding by the report “S&P 500 Sector Performance Across Business Cycles: A Comprehensive Analysis over 65 years (1960-2025),” published by financial data science and analytics company PPBF bv in August 2025. The report analyzed S&P 500 sector performances over different business cycles over the last 65 years. The analysis indicates that technology, with an average return of 125.2%, outperformed and emerged as a leading sector during the expansionary phases.
Our Methodology
To compile our list of the 12 most profitable software stocks to invest in, we used the Finviz stock screener to filter for software stocks with a market capitalization of more than $2 billion that have reported an operating margin and a net profit margin of over 15%. From this pool, we shortlisted the top 12 stocks with the highest trailing twelve-month (TTM) net income. These are then ranked in ascending order according to their net income.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
12 Most Profitable Software Stocks to Invest In
12. Paychex, Inc. (NASDAQ:PAYX)
Net Income (TTM): $1.61 billion
Number of Hedge Fund holdings: 50
On October 6, 2025, Stephens analyst Charles Nabhan began coverage on Paychex, Inc. (NASDAQ:PAYX) with a new Hold rating, citing a blend of reasons, including the stock’s premium valuation. The analyst views this valuation as restricting potential upside, even though it is supported by the company’s high margin and free cash flow profile. Although the valuation appears fair, the risk–reward setup is viewed as neutral in these market conditions.
The analyst further highlights the current labor market’s sub-optimal state, which indicates declining major performance indicators and revised estimations, adding to his conservative stance. That’s not it. The company’s revenue model, particularly concerning hiring trends and customer base, still exhibits some degree of variability and thus limits the projections for the future.
What drives investors to take an interest in Paychex, Inc. (NASDAQ:PAYX) is its recent acquisition of Paycor, which the analyst believes could be the future catalyst. During the latest earnings call, management also highlighted the company’s position to achieve targeted Paycor revenue synergies and surpass initial cost synergy expectations.
Paychex, Inc. (NASDAQ:PAYX) is a New York-based provider of human capital management solutions (HCM). Founded in 1971, the company offers services such as payroll processing services, employee payment services, and retirement solutions, among others.
11. Fortinet, Inc. (NASDAQ:FTNT)
Net Income (TTM): $1.94 billion
Number of Hedge Fund holdings: 46
On Friday, October 10, 2025, Roger Boyd, an analyst at UBS, reiterated a Hold rating on Fortinet, Inc. (NASDAQ:FTNT).
Earlier, on October 7, 2025, the company announced its extended partnership with Armis, a California-based company specializing in cyber exposure management & security, which enables organizations to streamline their security programs and enhance cyber resilience.
On the announcement, John Whittle, Chief Operating Officer of Fortinet, stated:
“We deliver the industry’s most robust threat intelligence and advanced AI for security, backed by Fortinet’s AI patent portfolio—the largest in cybersecurity. Expanding our partnership with Armis will give customers unified visibility and integrated defense across their growing digital attack surfaces.”
While Armis offers an in-depth analysis of the assets connected to the network and identifies the risks surrounding them, Fortinet, Inc. (NASDAQ:FTNT) boasts the ability to advise on security protocols for at-risk assets and enforce policies. Together, these entities provide robust asset visibility, efficient management, and enforcement capabilities to help security teams benefit from a more proactive security posture.
Fortinet, Inc. (NASDAQ:FTNT) is a California-based provider of cybersecurity and various networking and security solutions. Founded in 2000, the company offers its products to enterprises, communication service operators, and government institutions.
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