1 Software Stock to Consider Right Now and 2 We Turn Down

From commerce to culture, software is digitizing every aspect of our lives. In the past, the undeniable tailwinds fueling SaaS companies led to lofty valuation multiples that made it easier to raise capital. But this was a double-edged sword as the high prices exposed them to big drawdowns, and unfortunately, the industry has tumbled by 20.7% over the last six months. This drawdown is a far cry from the S&P 500’s 4.8% 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 is one software stock boasting a durable advantage and two we’re steering clear of.

Two Software Stocks to Sell:

Adobe (ADBE)

Market Cap: $115.6 billion

Originally named after Adobe Creek that ran behind co-founder John Warnock's house, Adobe (NASDAQ:ADBE) develops software products used for digital content creation, document management, and marketing solutions across desktop, mobile, and cloud platforms.

Why Are We Wary of ADBE?

1. Offerings struggled to generate meaningful interest as its average billings growth of 12.6% over the last year did not impress
2. Estimated sales growth of 9.4% for the next 12 months is soft and implies weaker demand
3. Operating margin expanded by 5.3 percentage points over the last year as it scaled and became more efficient

Adobe’s stock price of $282.76 implies a valuation ratio of 4.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ADBE.

Twilio (TWLO)

Market Cap: $19.4 billion

Known for the clever "Twilio Magic" demo that had developers creating functioning communications apps in minutes, Twilio (NYSE:TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.

Why Do We Think Twice About TWLO?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 13.4% underwhelmed
2. Gross margin of 49% reflects its high servicing costs
3. Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage

Twilio is trading at $125.75 per share, or 3.4x forward price-to-sales. Read our free research report to see why you should think twice about including TWLO in your portfolio.

One Software Stock to Watch:

Upstart (UPST)

Market Cap: $2.64 billion

Using over 2,500 data variables and trained on nearly 82 million repayment events, Upstart (NASDAQ:UPST) is an AI-powered lending platform that uses machine learning to help banks and credit unions more accurately assess borrower risk for personal loans, auto loans, and home equity lines of credit.

Why Do We Like UPST?

1. Loan originations on its platform are soaring as they averaged 51.6% growth over the last year, enabling the company to collect more fees and expand into new markets like credit cards.
2. Notable projected revenue growth of 35.6% for the next 12 months hints at market share gains
3. Operating margin improvement of 31.2 percentage points over the last year demonstrates its ability to scale efficiently

At $27.72 per share, Upstart trades at 2.3x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.

Stocks We Like Even More

ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.

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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.