As the artificial intelligence craze evolves, driving up growth for chipmakers such as Broadcom and Nvidia , investors should also consider software companies seeing strong fundamentals despite high interest rates. Canaccord Genuity ran a screen of about 147 software companies, and only four had revenue growth of 25% or more forecast for the next 12 months and at least 50% incremental free-cash flow, or FCF, margins over the trailing 12 months. Here are some of Canaccord’s “best of both worlds” picks: GitLab was among the four top names on the list. The company had a trailing last 12-month incremental FCF margin of some 93% and 25% of forecast growth in the next 12 months. While the stock has fallen almost 16% this year, Canaccord sees growth ahead. Citing GitLab’s ability to continue generating revenue growth, the investment bank expects operating leverage to materialize as the company “scales into what is a large software deployment market.” Cannacord has a price target of $65 on GitLab, which implies about 22% upside from Monday’s close. Called one of the high-quality names in Canaccord’s screen, Monday.com had a trailing incremental FCF margin of 91% and projected revenue growth of 28%. Canaccord cited high non-GAAP gross margins, durable growth and healthy FCF leverage over the trailing 12 months as drivers of Monday’s “best-in-class” incremental FCF. The stock today trades at a 9.3 multiple of 2025 enterprise value to revenue and 38 times enterprise value to FCF, Canaccord said, and is higher by 30% in 2024. While Canaccord does not think Monday.com is cheap, the firm expects growth to continue due to “upmarket momentum” and newly announced pricing plans that have yet to have an effect on growth. Elsewhere on the Street, Barclays is also bullish on Monday.com, recently initiating coverage with an overweight rating. Barclays’ price target of $275 implies about 11% upside from the last close. SentinelOne also turned up at the top of Canaccord’s screen, with a trailing incremental FCF of some 89% and forecast revenue growth of roughly 28%. Canaccord believes SentinelOne is a “long-term secular winner” because the company has positioned itself as a data-driven security platform. Canaccord has a buy rating on the stock and a price target of $23, implying about 13% upside. The stock has fallen about 26% in 2024.
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