Software is eating the world, and virtually no business is left untouched by it. Companies bringing it to life have been rewarded with high valuation multiples that make fundraising easier, but they have weighed on returns lately as the industry has pulled back by 8.5% over the past six months. This drop is a far cry from the S&P 500’s 10.7% ascent.
A cautious approach is imperative when dabbling in these businesses as the best will deliver robust earnings growth while the rest will be disrupted by competition and AI. Keeping that in mind, here are two resilient software stocks at the top of our wish list and one that may face trouble.
One Software Stock to Sell:
MongoDB (MDB)
Market Cap: $28.21 billion
Named after "humongous database," reflecting its ability to handle massive data loads, MongoDB (NASDAQ:MDB) provides a flexible document-based database platform that helps developers build, deploy, and maintain modern applications more efficiently.
Why Does MDB Worry Us?
- Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
- Operating margin improvement of 4 percentage points over the last year demonstrates its ability to scale efficiently
- Projected 4 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
MongoDB’s stock price of $349.37 implies a valuation ratio of 10.1x forward price-to-sales. Read our free research report to see why you should think twice about including MDB in your portfolio.
Two Software Stocks to Buy:
JFrog (FROG)
Market Cap: $10.17 billion
Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ:FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.
Why Do We Love FROG?
- ARR growth averaged 23.7% over the last year, showing customers are willing to take multi-year bets on its software
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Robust free cash flow margin of 26.9% gives it many options for capital deployment
JFrog is trading at $83.50 per share, or 15.8x forward price-to-sales. Is now the right time to buy? Find out in our full research report, it’s free.
Microsoft (MSFT)
Market Cap: $3.10 trillion
Originally named "Micro-soft" for microcomputer software when founded in 1975, Microsoft (NASDAQ:MSFT) is a global technology company that develops software, cloud services, devices, and AI solutions for consumers, businesses, and organizations worldwide.
Why Is MSFT a Top Pick?
- Microsoft is one of the great brands not just in tech but all of business. It produces mission-critical software and bundles it together, resulting in cream-of-the-crop gross margins.
- The company’s elite unit economics lead to robust profit margins that improve over time. This speaks to the scale advantages and operating efficiency across its diverse portfolio, which spans everything from Office and Azure to Minecraft.
- Microsoft has a virtuous cycle of returns. Its dominant market position enables it to generate strong free cash flow, and it reinvests these funds into promising ventures that further strengthen its competitive moat.
At $412.43 per share, Microsoft trades at 23.2x forward price-to-earnings. Is now a good time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn’t over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.