We recently published a list of 10 Best SaaS Stocks to Invest In. In this article, we are going to take a look at where Shopify Inc. (NYSE:SHOP) stands against other best SaaS stocks to invest in.
Mobile devices are now running more sophisticated and complicated software applications, which supports improving demand for SaaS solutions that can be accessed only with the help of an internet connection. As of now, continuous innovation has been helping businesses in running their operations globally. It continues to improve scalability and flexibility in data storage. Experts opine that the SaaS domain has been aiding in major decision-making and strategy-building as dynamic technologies such as AI and ML have been intersecting with it.
SaaS Growth Drivers for 2025
As per Fortune Business Insights, the global Software as a Service (SaaS) market size was pegged at US$273.55 billion in 2023 and is expected to grow from US$317.55 billion in 2024 to US$1,228.87 billion by 2032. The US SaaS market is expected to grow significantly, reaching an estimated value of US$236.69 billion by 2032, courtesy of the adoption of public and hybrid cloud-based tools by enterprises. Overall, the SaaS market growth is expected to be fueled by numerous factors such as an increase in the adoption of public & hybrid cloud-based solutions, integration with other tools, and centralized data-driven analytics.
As per Straits Research, increased demand for smart devices and their applications has been aiding the broader market. Notably, end-user demand for intelligent devices is supported by the expansion of email, instant messaging applications, and video calls. This is expected to contribute to the expansion of the SaaS market. Also, higher spending on cloud-based solutions by end-use businesses can accelerate the expansion of the broader SaaS industry over the upcoming years.
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Key Trends Likely to Help SaaS in 2025
With continuous advancements in technology, changing market demands, and increased dependence on cloud-based solutions, SaaS trends have been redefining the future of digital transformation for companies. Fortune Business Insights believes integrating AI and ML with SaaS Solutions will fuel broad-based market growth. This means that the adoption of AI/ML is expected to change the SaaS industry in many ways, mainly by improving the critical features of several software solutions. Notably, customizing & automating solutions, augmenting security, and improving human capacity are possible by incorporating SaaS solutions and AI/ML abilities.
Furthermore, SaaS has been continuously evolving and transforming services among cloud computing technologies. As per Fortune Business Insights, the key trending factors of SaaS are expected to continue to evolve and outline the future of cloud technologies, innovation, efficiency, and business values.
Our Methodology
To list the 10 Best SaaS Stocks to Invest In, we used a screener and scanned through several online rankings. Next, we chose the companies that were popular among hedge funds. Finally, the companies were arranged in ascending order of their hedge fund sentiments, as of Q3 2024.
At Insider Monkey we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Shopify Inc. (NYSE:SHOP)
Number of Hedge Fund Holders: 56
Shopify Inc. (NYSE:SHOP) is well-placed to capitalize on the positive momentum seen in the SaaS industry as it provides cloud-based software solutions to allow merchants to build, customize, and manage online stores. RBC Capital Markets maintained its “Outperform” rating on the company’s shares, offering a price target of $130.00. The firm’s analysis showcases that Shopify Inc. (NYSE:SHOP)’s Q4 2024 performance is expected to be healthier than market anticipations, courtesy of Gross Merchandise Volume (GMV) and margin strength. Furthermore, the company’s significant total addressable market (TAM) and strong potential for sustained growth over the long term were the key reasons given by RBC Capital Markets.
The global e-commerce market continues to boom, and SaaS platforms like Shopify Inc. (NYSE:SHOP) allow businesses to rapidly launch and manage stores. Given that e-commerce will remain a key driver of SaaS adoption, the company is well-placed to capture more market share. Shopify Inc. (NYSE:SHOP)’s SaaS platform aids multi-channel selling (such as websites, social media, and marketplaces), making it a critical tool for businesses poised to benefit from the e-commerce boom. Its lower cost of ownership for enterprise merchants and exclusive products including Shop Pay, Audiences, and Shop Campaigns act as a competitive advantage.
The company’s strong focus on developing enterprise-specific features, like improved B2B capabilities and enhanced POS systems, places it well to capture a larger share of the enterprise market. RiverPark Advisors, an investment advisory firm and sponsor of the RiverPark family of mutual funds, released its Q3 2024 investor letter. Here is what the fund said:
“Shopify Inc. (NYSE:SHOP): Shopify was a top contributor in the third quarter following a strong second quarter earnings report that included better than expected revenue growth and substantial margin expansion. Gross merchandise value (the value of all items sold on the platform) growth of 22% was three percentage points above investor estimates, revenue of $2.0 billion was $50 million better and free cash flow of $333 million was $80 million better. A combination of new merchants to the company’s platform, increased adoption of SHOP’s offerings by existing merchants, and e-commerce market share gains are driving this revenue growth and profitability.
Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP’s software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.”
Overall, SHOP ranks 9th on our list of best SaaS stocks to invest in. While we acknowledge the potential of SHOP as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than SHOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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