Microsoft, Snowflake, Datadog among JP Morgan's top software stocks for 2023
Jean-Luc Ichard/iStock Editorial via Getty Images

Microsoft (NASDAQ:MSFT), Snowflake (NYSE:SNOW), Datadog (NASDAQ:DDOG) and several other software companies were listed by investment firm J.P. Morgan as its top picks in the sector going into 2023, but for varying reasons.
A team of analysts noted that 2023 is likely to be a tale of two-halves for investors, with expectations that the S&P 500 will re-test the lows of 2022 in the first-half of the year, as the Federal Reserve raises interest rates too tightly while also dealing with a weaker economy.
However, that sell-off, combined with weaker inflation, rising unemployment and a decline in corporate sentiment should lead a pivot from the Federal Reserve and a recovery in asset prices, with the S&P 500 hitting 4,200 by the end of the year, the analysts added.
"If all these stars align, mid-2023 might be a rough timeframe to rotate out of stable/resilient software and into higher growth," the analysts wrote in a note to clients. 
Microsoft (MSFT), ServiceNow (NOW) and Snowflake (SNOW) are examples of software companies that have continued to see prioritization from customers, as well as being the beneficiaries of high gross renewal rates (between 95% and 99%), along with generating cash flow and numbers that have been "derisked."
But with the expected Fed pivot, investors may want to gain exposure to Datadog (DDOG), HubSpot (HUBS), ZoomInfo (ZI) and Cloudflare (NET) to get ahead of the rotation into higher growth names.
Microsoft (MSFT) was also named one of Wedbush Securities' top picks going into 2023, with the firm citing its strength in cloud computing as a key growth driver for the tech giant.