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Piper Sandler analyst Brent A. Bracelin upgraded NCino, Inc (NASDAQ:NCNO) and Weave Communications Inc (NYSE:WEAV) to Overweight from Neutral, lowered AvidXchange Holdings, Inc (NASDAQ: AVDX) to Neutral from Overweight, and lowered Unity Software Inc (NYSE: U) and BlackLine, Inc (NASDAQ: BL) to Underweight from Neutral.
The analyst entered 2024 with a higher degree of optimism for application software based on stabilizing demand fundamentals after two years of moderation, a declining interest rate backdrop sparking greater appetite for growth stocks, new secular tailwinds for cloud and data-driven by a generational shift to AI, CIO survey optimism showing accelerating cloud and AI spending intentions, and favorable risk-reward scenarios on 2025 metrics.
However, investor optimism has also risen, with the analysts' coverage list up 61% in 2023 (vs. 24% S&P 500).
Top ideas to own for 2024 include Workday, Inc (NASDAQ:WDAY), Snowflake Inc (NYSE: SNOW), Monday.Com Ltd (NASDAQ: MNDY), Klaviyo, Inc (NYSE: KVYO), and Global-E Online Ltd (NASDAQ: GLBE).
The key themes that he plans to track in 2024 closely include cloud recovery after two years of moderation, data renaissance with database and AI enabling software tools gaining importance, scarcity value for high growth given a sector slowdown, value in vertical software with favorable risk-reward profiles, and Al about Agents that could go mainstream in 2024 similar to ChatGPT adoption in 2023.
The analyst flagged WDAY, MNDY, and KVYO as three GARP ideas with compelling risk-reward profiles with CY25E EV/S multiples below 8x.
This compares to the five-year Rule of 40 cohort NTM EV/S median of 13.9x. For growth investors with a higher risk appetite, he flagged SNOW and GLBE as two differentiated cloud software stocks with 30%+ compounder potential.
