In the last week of May, SaaS stocks faced a reckoning. A revenue miss by Salesforce (NYSE:CRM) triggered one of the sector’s severest selloffs in two years. However, investors have been throwing out the baby with the bath water, creating some attractive SaaS stocks to buy.
In hindsight, the selloff in SaaS was slowly brewing under the hood. Over the last three months, the iShares Expanded Tech-Software Sector ETF (BATS:IGV) fell nearly 10% and lagged the S&P 500. Indeed, investors have been assessing the risk generative AI would pose to some software companies.
As a result, some companies like Adobe (NASDAQ:ADBE) have declined significantly due to the perceived risks. However, not all software is doomed. If anything, some software companies are AI beneficiaries and have products on the market today. After recent weakness, these SaaS stocks to buy are clear bargains. Take advantage of the weakness to load up on shares.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) is one of the SaaS stocks to buy that has been unfairly punished, presenting a compelling opportunity. Since its closing high of $812 on February 9, it has declined over 17%. One would be mistaken to think ServiceNow’s fortunes have changed; nothing could be farther from the truth.
Over the past year, the IT and workflow platform has emerged as one of the main beneficiaries of AI. The Now Platform enables enterprises to automate workflows across various domains, such as technology, customer service and human resources. It optimizes the various processes in these domains and connects data siloed in different data stores, supporting efficient workflows and productivity.
With AI, ServiceNow is improving its capabilities and offering better value to customers. While others are experimenting with AI, the Now Platform is delivering AI products like Now Assist. In the Q1 2024 earnings calls, CEO Bill McDermott revealed that the platform already had 20 generative AI use cases.
Lastly, on its analyst day, management outlined that generative AI would accelerate revenue growth and expand its total addressable market. It plans to achieve $11 billion in revenues this fiscal year and $15 billion by the end of 2026. These goals underline the argument that ServiceNow is a beneficiary of GenAI spending.
Veeva Systems (VEEV)
Veeva Systems (NYSE:VEEV) sells SaaS solutions to the life sciences industry. Its software is mission-critical to global life sciences organizations providing industry-specific data, services and software. Its systems support content management, multi-channel customer relationship management, master data management and customer data management.
Due to the mission-critical nature of its software solutions, Veeva has developed a moat around its products. Customers rely on Veeva Systems for essential use cases, which makes it a sticky product. For instance, bringing new products to market more quickly while maintaining compliance with government regulations.
Unfortunately, Veeva reported earnings a day after Salesforce and wasn’t spared. But looking at the results, there was a lot to like. Q1 FY2025 revenues were $650.3 million compared to $526.3 million one year ago, representing 24% year-over-year (YOY) growth. That was an acceleration from the 12% growth reported in Q4 2024.
Management noted incredible momentum, with significant wins in quality, regulatory, clinical and safety areas. Among the wins were 3 top 20 biopharma companies that signed up for multiple development cloud applications.
In terms of the long-term growth story, Veeva has massive potential. On its 2023 investor day, it outlined a total addressable market of $20 billion in life sciences. As of this writing, it’s only 12% penetrated. Indeed, this is one of the top SaaS stocks to buy before the market realizes its mistake.
MongoDB (MDB)
As the market sells first and asks questions later, take advantage and buy the dip in MongoDB (NASDAQ:MDB). That was the message from Stifel analysts Brad Reback and Robert Galvin, who see emerging AI growth drivers that will sustain over 20% growth.
Indeed, the database SaaS provider will benefit from AI in several ways. First, it will leverage AI for legacy app modernization. The company has completed tests where it deployed AI to analyze existing code, convert code and build unit and functional tests. Based on these tests, it can reduce the costs and time needed for modernization by 50%.
Secondly, MongoDB has inherent technical advantages that will strengthen its position in the AI application development stack. Its document-based architecture fits AI workloads since it has the flexibility to handle text, image, audio and video data. In contrast, legacy databases that utilize rigid schemas aren’t suitable.
These AI tailwinds make MongoDB one of the best SaaS stocks to buy today. On May 30, it reported quarterly results revealing 22% YOY revenue growth. MongoDB Atlas, its cloud-based service, grew faster at 32% YOY and represented 70% of revenues. Despite these impressive results, MDB stock fell 23%. The market has presented an opportunity in a SaaS play with several AI tailwinds.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
