(MENAFN- Khaleej Times) I have been a diehard fan of software shares since 2013, when Satya Nadella replaced Steve Ballmer as the CEO of the Evil Empire in Redmond and reinvented Microsoft's cloud franchise. The result? Mister Softy rose from 30 to 84 as I write in one of the epic valuation reratings I have even seen in the global software colossus founded by Bill Gates. The Next-generation software shares that so captivated Wall Street - Salesforce.com, Workday or Internet security IPOs like Palo Alto Networks or FireEye, all profiled in this column, provided epic money making opportunities on Nasdaq. Recurrent revenue models, M & A potential, rich intellectual capital, fabulous operating margins and global economies of scale all ensure that Wall Street will go gaga over software valuation multiples in 2018.
Strangely, as I scan the software constellation, I see steady Eddie growth megacaps (Microsoft, Adobe), growth sizzlers (House of Benioff), fascinating potential four bagger IPOs that will remain unnamed and sad sack value/fallen angels (Oracle, IBM - Deep Blue is one of the world's great software developers/licensors). While I am sure that software shares will see a 10-15 per cent hit if Nasdaq pulls back next year as the Fed rate hikes get ugly. This will be the time to pounce for new money.
Artificial intelligence, the digital transformation of the Milky Way, new paradigms in cloud computing, the menace of cyberhacking, the viral nature of social media data traffic, the popularity of subscriber and not licence models will all reshape the business models of the world's finest enterprise software firms. If the Elizabethan Age was the gold age of English literature, if the Athens of Sophocles and Pericles were the golden age of Hellenic drama and oratory, our time is an age of ferment and innovation for enterprise software.
The evolution of the public cloud development platforms is a game changer in software's innovation curve, as is the mathematics of machine learning. In all the industries I know (and trade) - banking, media, oil and gas, biotech, retail, mobile phones, autos - software creates new realities, new possibilities, a new DNA of the future. Those companies (and countries) not at the edge of the digital frontier are destined to share the fate of brontosaurus without even the excuse of an asteroid hit. I can rhapsodise (rant?) on the aesthetic dimensions of software for hours but must now limit myself to a few basic insights that will make the Techie Central cringe.
Database firm Oracle shares were gutted as the Street dissed its fiscal Q2 cloud revenue miss as evidence of a failed transition. As a fan of Soul Samurai Larry Ellison, I disagree. Oracle's focus on hybrid cloud is a Fortune 500 imperative, not a failure to reengineer the business.
VMware is no different but its shares have not been dissed down to 16 times forward earnings, even though Mark and Safra are the human capital creme de la creme in the Valley. Oracle is on the wrong side of Wall Street's expectations curve, not Silicon Valley's innovation curve. I concede Oracle overpaid for NetSuite but is latest database generation incorporates self-healing, artificial intelligence features. Mispriced? Yes.
Square is e-commerce payments platform for small merchants, a de facto closed loop software intensive ecosystem (think Apple). Jack Dorsey, the Valley icon, co-founded Square in 2009 to help a glass blower friend sell his art work. Gross payment volumes (GPV), $60 billion now, could well rise 30 per cent a year while the business boasts five million merchants transacting on its platform by 2021. Data analytics/AI software is its true growth engine. This puppy will win the Gorilla Game, as Paypal once did.
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