Software Should Remain Resilient in a Trump World
The long-term viability and competitive positions of the firms in our coverage of enterprise software remain intact.
As global markets digest the reality of a Donald Trump presidency, we have reviewed many of Trump’s key policy platforms as it relates to our enterprise software coverage. In general, we believe the long-term viability and competitive positions of the firms in our coverage remain intact, and we do not believe anything has fundamentally changed that would jeopardize moat ratings in the space. We are mindful of the potential effects that some of Trump’s policies could have in the short term, and we are paying particularly close attention to currency markets. Meanwhile, issues such as corporate taxation and immigration could have meaningful effects on software companies, particularly as a large amount of corporate cash balances and talent acquisition in software come from foreign markets. Still, we think the software business model is highly resilient, particularly as companies migrate to the annuity-like business model that coincides with subscription revenue. We continue to view Salesforce.com (CRM) as our best idea in software, while wide-moat names such as Blackbaud (BLKB) and Guidewire (GWRE) trade at moderate discounts to fair value today. We believe investors should also pay close attention to other wide-moat names such as Adobe (ADBE) and Microsoft (MSFT) should shares experience weakness in the wake of the election results.
In general, we think the sweeping secular shift to the cloud will remain the most powerful theme in software today, ultimately creating a relatively high floor for growth. While timing around larger deals could become choppier in a less certain economic environment, we generally believe corporations will look to the cloud as a means of increased efficiency and cost savings (a theme we outlined in our recent Salesforce.com deep dive, "May the Force Be With You: Salesforce.com Is the Newest Software Empire").
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Rodney Nelson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.