3 SaaS Stocks to Watch

Software-as-a-service (SaaS) is back in vogue, thanks to generative artificial intelligence (AI) and what it could do for business growth and productivity. Here is a collection of stocks poised to benefit from the rising demand for AI applications and software.

• GitLab has a new tool with AI capabilities that can make code suggestions to software development teams.
• Workiva has integrated generative AI into its ESG reporting and risk management software.
• Veeva’s next CRM for the life sciences industry will feature an AI chatbot to support sales and medical teams.

GitLab

The AI Software Development Stock

GitLab [GTLB] is a SaaS provider that helps businesses during the software development process. It enables them to save drafts of code, for example, while identifying any bugs and glitches. Customers with $5,000 of annual recurring revenue increased 33% year-over-year to 7,815 in the second quarter (Q2) of 2023, while the number of customers that pay in excess of $100,000 rose 37% to 810.

In June, GitLab launched Duo, a tool for what is known as development, security and operations (or DevSecOps for short) with AI capabilities, including the ability to make code suggestions. The company strongly believes that the future of coding will be AI-assisted.

Research by GitLab published earlier this year found that a third of businesses are already relying on AI to support human software development, while another two-thirds plan to use them in the future. “If there was one inescapable takeaway from the survey data, it’s that AI in software development is here to stay,” concluded the report.

Workiva

The ESG and Risk Monitoring Stock

Workiva [WK] offers businesses software solutions for enterprise risk management. The company has a long-standing partnership with one of the world’s big four accounting firms, KPMG, on ESG data collection. Customer contracts worth at least $150,000 annually rose 28% year-over-year to 823 in Q2 2023, while 272 customers had an annual contract value of at least $300,000, a 40% increase.

In August, Workiva announced that generative AI is now integrated into its SaaS products to boost customer efficiency and productivity, as well as to deliver faster decision-making. Users will have “the ability to author, edit and rewrite content across the company’s entire suite of solutions” to improve workflows.

“Given the increasing stakeholder scrutiny of private and public entities, our platform and technology have never been more relevant,” said Workiva Chief Technology Officer David Haila in a press release. “Off-the-shelf foundational generative AI models” are becoming more important for producing targeted responses, Haila added.

Veeva

The Life Sciences CRM Stock

Veeva Systems [VEEV] is another name you might not be familiar with, but it has received a slew of analyst upgrades since the end of August after posting its Q2 2024 earnings report.

The cloud computing company is focused on the pharmaceutical and life sciences industries. Earnings per share for the three months to 31 July were $1.21, up from $1.03 per share in the year prior. Quarterly revenue increased 10% to $590.2m from $534.2m. "We are executing well, and our proven operating model will continue to drive strong growth and profitability well into the future,” commented Veeva Chief Financial Officer Brent Bowman.

Veeva’s next-generation enterprise CRM, Vault, will go on general release in April of next year. Ahead of that, the company has signed up its first customer: an unnamed “innovative oncology biotech”. Vault comes with CRM Bot, an AI assistant designed to support the productivity of sales and medical teams.

WisdomTree Cloud Computing Fund

Another Way to Invest in SaaS

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

There are no ETFs focused solely on SaaS, but cloud computing funds offer the best exposure to the theme.

The WisdomTree Cloud Computing Fund [WCLD] holds GitLab, Workiva and Veeva. The fund has allocated 86.3% of its portfolio to information technology (IT) as of 18 September. Financials and industrials have weightings of 5.5% and 2.8% respectively, while healthcare and communication services have both been allocated 2.7%. The fund is up 5.4% in the past year and up 10% in the past six months.

The First Trust Cloud Computing ETF [SKYY], which also holds all three stocks, has allocated 50.3% of its portfolio to software and 20.8% to IT services, followed by technology hardware, storage and peripherals (10%), communications equipment (6.2%), interactive media and services (4.5%), broadline retail (3.9%), diversified telecommunications services (1.3%), professional services (1.2%), media (0.7%) and healthcare technology (0.6%). The fund is up 18.3% in the past year and up 24.5% in the past six months.