Credit Suisse highlights 10 reasons to remain overweight software
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Credit Suisse's investment strategy team remains bullish on the software segment of the economy, according to a client note that came out on Thursday. The investment institution outlined 10 reasons why market participants should hold an overweight stance on the sector.
Listed below are the 10 reasons Credit Suisse is overweight on software:
No. 1: âSoftware is defensive.â The firm added that software is defensive statistically with a negative correlation to ISM new orders and bond yields.
No. 2: âCost cutting.â Credit Suisse said that over time the cost of software falls 1.6% a year while unit labor costs rise by 1.9% a year.
No. 3: âNot over-investing or âover-earning.â CS highlighted that the software investment share of GDP is only modestly above its norm.
No. 4: âFor many business models, the differentiating factor will be software.â For example, software is becoming much more critical for auto producers.
No. 5: âExcellent earnings revisions.â
No. 6: âRanks very well on our fundamental scorecard.â
No. 7: âValuation is not a constraint.â CS noted that P/E multiples are not at sell signals.
No. 8: âSector for all seasons: If we are wrong and there is a sustained strong cyclical recovery, then software has a beta of 1.5x recovery.â
No. 9: âAn AI bubble hedge.â The investment firm outlined that they see a 20%+ chance markets enter a late-cycle bubble.
No. 10: âThe warning signals are not seen.â CS mentioned that software ranks sixth out of 22 on our positioning scorecard and is only modestly overbought.
For investors that want to analyze additional information on the software space, here are some exchange traded funds that offer diversified exposure to the segment:

iShares Expanded Tech-Software Sector ETF (BATS:IGV)
First Trust Cloud Computing ETF (NASDAQ:SKYY)
Global X Cloud Computing ETF (NASDAQ:CLOU)
SPDR S&P Software & Services ETF (NYSEARCA:XSW)
ETFMG Prime Cyber Security Fund (HACK)

Moreover, investors can also look at popular single-stock software names as well. Some stocks include the likes of Autodesk (ADSK), Oracle (ORCL), Intuit (INTU),DocuSign (DOCU), Workday (WDAY), VMware (VMW), and Adobe Systems (ADBE).
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