HSBC starts coverage on Adobe, Palo Alto, others; sees AI, cloud boosting growth
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Investment firm HSBC initiated nine software-based companies citing trends in cloud, artificial intelligence and digital transformation that could bolster growth. 
The firm gave buy ratings to Fortinet (FTNT) and Synopsys (SNPS); hold ratings to Adobe (NASDAQ:ADBE), Akamai Technologies (NASDAQ:AKAM), Asana (ASAN), Autodesk (NASDAQ:ADSK), Intuit (INTU) and Palo Alto Networks (NASDAQ:PANW); and a reduce rating on Fair Isaac Corporation (FICO).
"We highlight the companies that we believe are at critical stages of their operations with their leveraged operating models poised to deliver better operating performances than peers given strong demand," analysts Stephen Bersey and Abhishek Shukla in a September note.
"The software models of these companies have inherent operating leverage built in," they added.
The firm warned that leverage will be non-linear with periods of enhanced leverage, detracted leverage and even negative leverage. 
The key trends that are combining to drive above-market turnover growth even amid the uncertain macro backdrop include: 


Cloud: Economic and agility benefits remain clear, in our view. We believe that the shift to the cloud is still at an early stage, expecting a decade or more of elevated demand.

Digital Transformation: COVID-19 highlighted the urgency of the need for digital transformation to gain business agility and continuity through any unforeseen obstacle.

AI: We see the promise of AI given the many opportunities to enhance the features and performance of many existing software platforms and solutions. However, the timing and magnitude of monetization remains unclear; we take a conservative near-term view.

The analysts note that the market may be overlooking "many positive attributes" against the current uncertain backdrop. 
"Software typically has a high ROI, and software projects typically do well on customersâ investment rank order lists when capital budgets come under stress," the firm added.
"Software improves productivity, and if companies must respond to a deteriorating macro environment by cutting staff, software can make up for the workforce deficit and help to stabilize ongoing operations."

More on Adobe, Autodesk, etc.

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