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Software-as-a-Service (SaaS) has revolutionized how businesses operate by delivering applications via the cloud on a subscription basis. SaaS companies provide essential tools for productivity, collaboration, data analysis, customer relationship management and much more. The SaaS model offers many advantages over traditional on-premises software, including lower upfront costs, automatic updates, flexible scalability, and accessibility from anywhere. As a result, the SaaS market has exploded in recent years and is expected to exceed $300 billion by 2026. For investors, the top SaaS stocks present compelling opportunities for growth and returns. In this article, we’ll examine 5 of the best SaaS stocks to buy now.

Key Takeaways:

• SaaS delivers software over the internet on a subscription basis
• SaaS offers advantages like lower costs, automatic updates and scalability
• The SaaS market is rapidly growing and expected to top $300B by 2026
• Top SaaS stocks have high revenue growth and large market opportunities
• The 5 best SaaS stocks to buy are ServiceNow, Workday, Salesforce, Microsoft and Adobe

What are SaaS stocks?

SaaS stocks are shares of companies that primarily provide cloud-based software services on a subscription model, rather than selling licenses for on-premises software installation. Customers access the software over the internet, typically paying a recurring fee on a monthly or annual basis. This provides a steady stream of subscription revenue for the SaaS provider.

Well-known examples of SaaS include productivity and collaboration tools like Microsoft Office 365 and Google Workspace, customer relationship management platforms like Salesforce, and creative software like Adobe Creative Cloud. The SaaS model has spread to virtually every software category.

SaaS stocks are popular with investors because the recurring revenue provides great visibility, the scalable delivery model supports high margins, and the growth of cloud computing is driving rapid expansion. However, SaaS stocks often trade at high price-to-sales and price-to-earnings ratios, so it’s important to evaluate their growth prospects and competitive advantages.

Performance Comparison of Top SaaS Stocks

5 Best SaaS Stocks to Buy

The companies we have listed are based on hedge fund interest, using data from Insider Monkey’s Q2 2024 report. They include both diversified tech giants and specialized SaaS leaders:

1. ServiceNow (NOW)
2. Workday (WDAY)
3. Salesforce (CRM)
4. Microsoft (MSFT)
5. Adobe (ADBE)

1. ServiceNow (NOW)

Number of Hedge Fund Holders (Q2 2024): 97

ServiceNow is a leading provider of cloud-based software for IT service management, IT operations management, and business workflow automation. Its Now Platform helps organizations manage digital workflows for enterprise operations.

As more companies undergo digital transformations and migrate to the cloud, ServiceNow is well-positioned for growth. It has an expansive market opportunity in helping customers make work more efficient across IT, employee and customer workflows. ServiceNow’s solutions drive productivity by automating routine work and streamlining complex processes.

The company’s IT Service Management product is used by over 80% of the Fortune 500 to provide a single system of action for IT. ServiceNow’s AI and machine learning technologies like Agent Intelligence and predictive intelligence help preempt issues and automate resolutions. ServiceNow is also innovating in areas like robotic process automation, virtual agents, and performance analytics.

According to insidermonkey, Fisher Asset Management, led by Ken Fisher, holds a $1.26 billion stake in ServiceNow (NOW), comprising 1,606,138 shares.

ServiceNow, has exceeded expectations in its Q4 2023 financial results. The company reported subscription revenues of $2,365 million, a 27% increase year-over-year, and total revenues of $2,437 million, up 26% from the previous year. ServiceNow’s current remaining performance obligations also grew by 24% to $8.60 billion, indicating strong future revenue potential. The company’s ability to secure large-scale deals was evident, with 168 transactions over $1 million in net new ACV, a 33% increase compared to Q4 2022. Based on these impressive results, ServiceNow has raised its 2024 subscription revenues and operating margin outlook, demonstrating its confidence in continued growth and profitability.

According to Wall Street Analyst on NOW stock. Of the 41 analysts following the stock, 31 give it a Buy, 3 has it at Hold and 1 calls it a Sell.

Why We Picked ServiceNow:

• Impressive Financial Performance: ServiceNow has consistently delivered strong financial results, with a CAGR of 28% in recent years, expected to continue due to its expanding enterprise customer base.
• Diverse Product Portfolio: Their offerings include IT service management, customer service management, and security operations solutions, addressing a wide range of enterprise needs.
• Expansion into New Markets: The company is exploring AI and machine learning, enhancing its platform’s capabilities and attracting new customers.
• Strong Customer Base: ServiceNow counts prominent enterprises across various industries as its customers, demonstrating its ability to cater to complex organizational requirements.

2. Workday (WDAY)

Number of Hedge Fund Holders (Q2 2024): 87

Workday is a leading provider of human capital management (HCM) and enterprise resource planning (ERP) software delivered exclusively through the cloud. Its applications help organizations manage critical business functions including HR, finance, planning and spend management.

As a cloud-only provider, Workday has an advantage over legacy on-premises competitors in meeting the needs of an increasingly remote and mobile workforce. Workday’s HCM software streamlines HR processes such as recruiting, payroll, talent management and workforce planning. Its ERP software helps companies manage finances, projects, procurement and more.

According to insidermonkey, Viking Global, managed by Andreas Halvorsen, owns 3,959,965 shares of Workday (WDAY), valued at approximately 885.3 million dollars.

Workday has been gaining market share, with over 50% of the Fortune 500 and 25% of the Global 2000 now using its software. It has significant growth opportunities in expanding further into international markets, targeting medium enterprises, and cross-selling additional products to its 9,500 customers.

Workday reported strong fiscal 2025 first quarter results, with total revenues reaching $1.99 billion, an 18.1% increase year-over-year. Subscription revenues grew 18.8% to $1.815 billion. The company’s operating income improved significantly, turning from a loss to a $64 million profit. Non-GAAP operating income rose to $515 million, representing 25.9% of revenues.

The company’s financial position remained robust, with a 12-month subscription revenue backlog of $6.60 billion and a total backlog of $20.68 billion. Operating cash flows increased to $372 million, while free cash flows reached $291 million. Workday continued its share repurchase program, buying back 0.5 million shares for $134 million. The company’s cash and marketable securities stood at $7.18 billion as of April 30, 2024.

According to Wall Street Analyst on WDAY stock. Of the 38 analysts following the stock, 22 give it a Buy, 8 has it at Hold and 1 calls it a Sell.

Why We Picked Workday:

• Consistent Financial Growth: Workday has shown steady revenue and subscription revenue growth year over year, indicating its solutions’ increasing adoption by enterprises.
• Strong Market Position: Holding a solid position in the ERP and HCM markets, Workday competes with traditional vendors like SAP and Oracle, offering modern cloud-based alternatives.
• Innovation: Workday continuously innovates, introducing Workday Extend for custom application development and Workday Enterprise Planning for comprehensive planning.
• Expanding Customer Base: Their customer base includes notable names like Netflix, Visa, and Amazon, demonstrating their trust in Workday’s solutions.

3. Salesforce (CRM)

Number of Hedge Fund Holders (Q2 2024): 120

Salesforce is the leading provider of customer relationship management (CRM) software, delivered through the cloud on a SaaS model. Its platform helps companies manage sales, customer service, marketing automation, analytics and application development.

Salesforce practically pioneered the SaaS model and now has over 150,000 customers relying on its cloud applications. It has been the leader in the CRM market for nine consecutive years, with a 23.8% market share that is nearly double the next closest competitor. Salesforce’s Customer 360 platform provides a single shared view of customer data across an organization to drive smarter, more personalized interactions.

Salesforce is aggressively innovating in areas like artificial intelligence to help companies make better decisions and automate processes. Its new Einstein GPT Copilots inject generative AI functionality into its applications to deliver better predictions and recommendations. Salesforce is also expanding its total addressable market through new organic developments and acquisitions in commerce, integration and business analytics.

According to insidermonkey, Ken Fisher’s Fisher Asset Management holds 11.96 million Salesforce (CRM) shares, valued at $3.08 billion as of the latest filing.

Salesforce’s fiscal 2024 results showcased robust growth, with revenue soaring to $34.86 billion, marking an impressive 11% year-over-year increase. Subscription and support revenues, the backbone of the company, surged by 12% to reach $32.54 billion. Despite flat professional services and other revenues at $2.32 billion, Salesforce demonstrated resilience. The company’s GAAP operating margin stood at 14.4%, while the non-GAAP operating margin reached 30.5%.

Notably, restructuring efforts had a negative impact of 280 basis points on the GAAP operating margin. Salesforce’s strong performance highlights its ability to navigate challenges and maintain its position as a leading force in the industry. Salesforce is targeting $50 billion in revenue by fiscal 2026 while also improving its operating margin.

According to Wall Street Analyst on CRM stock. Of the 52 analysts following the stock, 33 give it a Buy, 13 has it at Hold and 1 calls it a sell.

Why We Picked Salesforce:

• Dominant Market Presence: Salesforce is a pioneer and leader in the CRM space, with a significant market share and a reputation for innovation.
• Diversification: They have diversified beyond CRM, offering commerce, marketing, and analytics solutions, solidifying their position in the SaaS market.
• Successful Acquisitions: Salesforce has a history of strategic acquisitions, such as Slack, enhancing their product portfolio and market reach.
• Strong Financials: The company consistently delivers impressive financial results, with robust revenue growth and a healthy cash position.

4. Microsoft (MSFT)

Number of Hedge Fund Holders (Q2 2024): 284

Microsoft is a global technology leader that has successfully transitioned much of its business to the cloud. While best known for software like Windows and Office, Microsoft has become a major player in cloud infrastructure and SaaS. Its three main cloud segments now generate nearly 50% of its total revenue.

Microsoft’s Productivity and Business Processes segment includes Office 365, its subscription-based suite of productivity apps including Word, Excel and PowerPoint. It also contains the Teams communication and collaboration platform, the Dynamics 365 cloud-based business applications, and LinkedIn. Segment revenue rose 9.39% last year to $69.27 billion.

According to insidermonkey, The Bill & Melinda Gates Foundation Trust, managed by Michael Larson, owns 34.89 million Microsoft (MSFT) shares worth $15.59 billion.

The company’s Intelligent Cloud segment contains the Azure cloud computing platform, a challenger to Amazon Web Services that’s growing rapidly. Azure offers over 200 products and cloud services for building and running applications. The segment also includes the SQL Server database, Windows Server, and Enterprise Services. Intelligent Cloud revenue increased 16.92% last year to $88 billion.

Finally, Microsoft’s More Personal Computing segment includes Windows, hardware like Surface and Xbox, search advertising and the Windows Store. This segment got $54.73 billion, down from $59.94 billion in the previous year, indicating an 8.69% decrease. So while Microsoft may not be a pure-play SaaS company, it’s a major player in the space with a diversified portfolio of cloud offerings driving strong overall growth.

According to Wall Street Analyst on MSFT stock. Of the 61 analysts following the stock, 49 give it a Buy and 3 has it at Hold.

Why We Picked Microsoft:

• Diversified Revenue Streams: Microsoft has a diverse portfolio, including operating systems, productivity software, and cloud computing services, with SaaS offerings complementing this diverse range.
• Cloud Computing Leadership: MSFT is a leader in cloud infrastructure with Azure, integrating seamlessly with their SaaS solutions for a comprehensive offering.
• Enterprise Focus: Microsoft has a strong enterprise customer base, and its SaaS solutions are designed to meet the complex needs of large organizations.
• Innovation: The company has a culture of innovation, adapting to changing market demands and embracing emerging technologies like AI, quantum computing, and mixed reality.

5. Adobe (ADBE)

Number of Hedge Fund Holders (Q2 2024): 107

Adobe is a leading software company best known for its creativity and document solutions. Its Creative Cloud includes popular applications like Photoshop, Illustrator, Premiere Pro and Acrobat for graphic design, video editing, web development and photography. And its Document Cloud provides the ubiquitous PDF for secure document sharing.

Adobe has successfully transitioned its creative software business to a SaaS model over the past decade. It now has over 26 million Creative Cloud subscribers generating nearly $10 billion in annual recurring revenue. In addition, Adobe has built a strong presence in digital media, digital experience and publishing and ecommerce.

According to insidermonkey, Ken Fisher’s Fisher Asset Management holds 4.77 million Adobe (ADBE) shares, with a total value of $2.65 billion.

The company’s total addressable market across creativity, digital documents and customer experience management exceeds $200 billion. As it expands its portfolio of software and services in these areas, Adobe has significant opportunities to grow its customer base and increase average revenue per user. Its digital experience segment is also benefitting from the growth of digital commerce.

Adobe has been a consistent performer, with revenue increasing around 10% annually over the past few years to reach $19.41 billion in 2023. It converted over $7 billion of that revenue into operating cash flow and continues to post best-in-class operating margins above 35%. With a diversified portfolio of essential software tools, Adobe has proven to be relatively resilient to economic downturns.

According to Wall Street Analyst on ADBE stock. Of the 44 analysts following the stock, 26 give it a Buy, 8 has it at Hold and 2 calls it a Sell.

Why We Picked Adobe:

• Successful SaaS Transition: Adobe’s shift to a subscription model has resulted in increasing revenue and a growing subscriber base, ensuring stable and predictable revenue streams.
• Strong Brand Recognition: Adobe is a trusted brand in the software industry, known for its high-quality creative and digital experience management tools.
• Diverse Product Portfolio: They offer a comprehensive suite of products, including industry-standard tools for graphic design, video editing, and web development, as well as in-demand experience cloud solutions.
• Innovation and Acquisitions: Adobe continuously innovates and acquires companies to enhance its product offerings, recently acquiring Frame.io and ContentCal.

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Conclusion

SaaS has become a critical software delivery model and the SaaS market is expected to grow rapidly this decade. The top SaaS stocks provide attractive opportunities to gain exposure to this growth trend. ServiceNow, Workday, Salesforce, Microsoft and Adobe are all great long-term bets with their leading positions, large market opportunities and strong execution.

FAQs

1. What are the benefits of investing in SaaS stocks?

Investing in SaaS stocks offers the potential for long-term capital gains as the SaaS market is expected to continue its rapid growth. SaaS companies typically have high margins and recurring revenue streams, making them attractive investment opportunities.

2. What is the difference between SaaS and cloud computing?

SaaS refers to a specific software distribution model in which a provider hosts applications and makes them available to customers over the internet, usually on a subscription basis. Cloud computing is a broader term that encompasses SaaS as well as other web-based services, including platform-as-a-service (PaaS) for application development and infrastructure-as-a-service (IaaS) for storage and computing power on-demand.

3. Are SaaS stocks a good long-term investment?

Yes, SaaS stocks can be an excellent long-term investment. The SaaS business model is resilient and adaptable, and the industry is expected to continue expanding. The companies mentioned in this article have strong growth potential and are well-positioned to benefit from the SaaS boom.

4. What are the risks associated with investing in SaaS stocks?

As with any investment, there are risks involved. SaaS companies may face competition, changing market demands, and the impact of economic downturns. Additionally, some SaaS stocks may be overvalued, and investors should carefully research and assess the fundamentals and growth prospects before investing.

5. What are the key factors driving the growth of the SaaS industry?

The SaaS industry is growing due to increasing cloud adoption, digital transformation, and changing consumer preferences. The flexibility, accessibility, and cost-effectiveness of SaaS solutions are driving their adoption across various industries.