Technology

The Ultimate Enterprise Software Handbook

By: Derrick Wood, CFA; Andrew Sherman, CFA

Apr. 29, 2024 - 2 minutes 30 seconds

Two people analyzing data on a wall while holding a laptop computer.

The TD Cowen Insight

We are publishing our first-ever Enterprise Software handbook, a deep dive into all aspects of the market with a primary focus on SaaS, Apps, Data & Analytics, IT, Software, and Development & Operations (DevOps). We analyze historical returns, valuation trends, interest rate correlation, M&A activity, market growth forecasts, market share trends, operational KPIs, business model fundamentals, architectural shifts and much more.

Industry Overview

Enterprise software stocks benefit from:

Very large markets ($1.3T in 2027, a 13.6% 5-yr Compound Annual Growth Rate (CAGR)
Strong historical market outperformance, alongside high levels of M&A
Compelling business models (recurring revenue streams, high margins, sticky moats)
Durable secular growth, with cloud migration still a key driver and AI an emerging tailwind

Key industry insights include:

With 54% of Software spend remaining on-premises, cloud workload migration remains a strong driver of spend unlock.
In North America, >100 public software companies have been acquired since 2015, often coming in waves within sub-sectors, with Private Equity becoming the most active acquirers in recent years.

What is the impact of Generative AI on software?

Data suggests that AI has yet to be a growth catalyst and budgets have remained under pressure. Over one year after Generative AI (GenAI) tech broke into mainstream, average Software growth forecasts for Calendar Year (CY) 2024 are at its lowest levels, at ~14% vs. ~20% in CY2023. The cycle seems to be accruing more value to hardware and infrastructure rather than software in the front-end of the spending curve, opposite that of the SaaS and Cloud cycle that kicked off in 2010. We look for CY026-2028 being the years for GenAI becoming a more meaningful growth catalyst for the group.

For more information on GenAI, read Generative AI Set To Drive Monumental Tech Shifts, our multi-sector Ahead of The Curve® Report on GenAI which features proprietary analysis on productivity gains and Total Addressable Market (TAM), market segmentation, business models, and other topics including compute resources, hardware, data centers, cybersecurity, and regulations.

What To Watch

Our full report dives deeper into topics that could lead the next developments for the enterprise software industry including Interest rate direction, GenAI monetization cycle, IGV vs. SOX relationship, cloud migration trends, M&A waves, growth adjusted multiples across the group and Rule of 40 trends across individual companies.

Subscribing clients can read the full report, The Ultimate Enterprise Software Handbook - Ahead Of The Curve Series, via the TD One Portal

Disclaimer

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Derrick Wood

Managing Director, TMT – Software Research Analyst, TD Cowen

Derrick Wood
Managing Director, TMT – Software Research Analyst, TD Cowen

Biography

Derrick Wood joined TD Cowen in April 2016 and covers the enterprise software sector, including SaaS and big data/analytics. Before joining TD Cowen, Mr. Wood was an analyst with Susquehanna International Group, Wedbush Securities, and Pacific Growth Equities. He started covering enterprise software in 2000.

Mr. Wood received a bachelor’s degree in economics from UC Davis. He is a CFA charterholder.

Andrew Sherman

Vice President, TMT – Software Research Analyst, TD Cowen

Andrew Sherman
Vice President, TMT – Software Research Analyst, TD Cowen

Biography

Andrew Sherman is an Associate covering the enterprise software sector. Before joining TD Cowen in 2018, Mr. Sherman was an equity analyst at Boston Partners Global Investors, where he covered various sectors including technology and media.

Mr. Sherman received a bachelor’s degree in finance from the University of New Hampshire. He is a CFA charterholder.