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Goldman Sachs Names Top Tech Stocks Expected to See Profitability Growth
Goldman Sachs predicts that Salesforce will experience profitable growth due to significant changes made to its operating model. The company's profit margins are projected to rise by 5.5 percentage points in 2023, reaching 28%. Salesforce's commitment to shareholder returns is also highlighted, with a $20 billion share repurchase program. Goldman Sachs forecasts a potential upside of over 50% for Salesforce's stock.
Monday.com, a software company aiming to increase team efficiency, is also expected to improve its financial performance. The company recently increased its operating profitability by two years and is committed to generating free cash flow. Goldman Sachs sees the potential for Monday.com to focus on expansion within its existing base, which could lead to increased profitability.
Goldman Sachs expects Vertex, a tax software provider, to see a 4.2 percentage point expansion in its operating margins from 2022 to 2024. The company has made several changes to its operations that are yet to be fully reflected in consensus estimates. According to Goldman Sachs, Vertex has significant, structural near-term margin tailwinds across operating expense items and gross margins.
Guidewire, a platform for property and casualty insurers, is predicted by Goldman Sachs to see increased profit margins as a result of initial investments in cloud infrastructure. The investment bank has estimated that Guidewire's gross margins could rise from 49% in 2022 to 60% by 2025, while annual recurring revenue could grow from $664 million to over $1 billion during the same period.
Procore, a construction management software provider, has increased its focus on cost discipline and profitability. Goldman Sachs notes the company's strong presence in construction, along with efforts to improve execution in international markets, as factors that could drive revenue outperformance and margin expansion. The acceleration of the breakeven margin timeline could be a key catalyst for the stock, according to Goldman's analysts.
Goldman Sachs has observed a shift in company executive thinking from prioritizing growth to prioritizing profitability. This includes efforts to cut costs and reorganize sales and marketing departments, which Goldman Sachs believes will lead to increased margin expansion. Overall, the bank believes that the bulk of the margin expansion is yet to come, as companies begin to realize the full benefits of cost-cutting measures implemented in the first half of 2023.
The recent analysis by Goldman Sachs, revealing the top tech stocks expected to drive profitability growth, offers valuable insights into operating models that could be replicated by new businesses. It reveals that a shift in company executive thinking from prioritizing growth to prioritizing profitability may yield better outcomes in the long run. New businesses could benefit by focusing on cost discipline and developing long-term growth strategies that prioritize bottom-line growth. The firms in the Goldman Sachs report understand the market trends and have identified where to cut costs without damaging critical functions. Businesses that learn to achieve this balance can increase their profit margins and drive the profitability that investors demand. The report also highlights the importance of exploring new markets. For instance, companies, such as Procore, have improved execution in international markets to drive revenue outperformance and margin expansion. New businesses that invest in foreign markets and prioritize cost-cutting measures can drive margin expansion and fuel growth. Thus, Goldman Sachs' report offers valuable lessons that new businesses can learn from and apply to create successful business models that prioritize profitability and long-term growth.