Software drives the information age. Every day, companies in all industries are turning to software to differentiate themselves from their competitors. This goes beyond purchasing off-the-shelf software packages for e-commerce, customer service and other critical functions. Companies are finding that building custom software applications results in better customer loyalty and establishes an edge in the marketplace. These efforts are being grouped under the term “digital transformation.” Estimates for enterprise digital transformation spending over the next decade are in the trillions of dollars.

Given this, what are the implications for stock investing?

Every digital transformation project starts with decisions about the software stack to be used. These are driven by developers, who increasingly influence technology choices for their enterprises. The software stack includes all the software packages, components and services necessary to deliver the desired customer experience. Examples of these are where to host the software, how to measure results, what database to use, how to process payments, communicate with customers, calculate tax rates, etc. These software building blocks and services are provided by many companies, some of which are publicly traded. Understanding the dynamics behind this software ecosystem will yield insight into the growth prospects for these software service providers and their associated stock performance. Leading software providers in large markets with a developer-focused bias and an open platform of programmable services will generate years of upside for informed investors.

This blog is focused on examining evolving trends in the modern software development stack and analyzing the companies that power them for investment. The rapid pace of launching new innovations through software and reinventing enterprises through digital transformation will continue far into the future. By considering the companies that provide the building blocks powering these software services, investors can capitalize on these secular trends and realize investing advantage.

This blog is written by a software engineering leader at several high-traffic Internet properties. The author has spent many years building and delivering innovative software solutions in areas such as advertising, e-commerce, news, product reviews, dating and the sharing economy. He has done this for both rapidly growing start-ups and large Internet properties. He has made purchase decisions about many of the software services provided by covered companies. This experience as a builder has provided him with unique insight into the companies powering the building blocks of modern software-driven customer experiences. These insights contribute to the investment thesis for covered software companies.

With this in mind, this blog will cover the following:

  • It will focus on a narrow swathe of companies which provide solutions and services for building software applications or enabling digital experiences. It will not try to cover macro activity in the stock market, the major consumer-facing technology companies (FAANG) or large packaged software providers. Many of the companies covered will be smaller, emerging players in the software or cloud space. The basic criteria is that their customers are software developers or digital operators within other companies, not the general consumer.
  • Coverage will skew towards the leading software providers in each segment versus exhaustive inclusion of every company. Tailing providers will generally be mentioned as part of competitive analysis for the leader.
  • The time horizon for these investments is long term. The thesis is that these building block companies will grow significantly as software continues to power an increasing portion of our daily lives. Practically, I think companies covered favorably in this blog should at least double in value over the next five years.
  • Coverage will primarily examine product offerings, competitive positioning and the overall evolution of the software infrastructure market. I will also try to provide non-technical investors with background on the associated technologies and why new developments are important. This may result in painfully long posts. Investors can skim or skip around. My goal is to empower investment decisions with a deeper understanding of the software landscape, beyond what can be gleaned from financial results.
  • The investing philosophy is primarily growth versus value oriented. This is not a blog for investors who immediately write off companies with a high PE ratio.
  • Investors can choose to build an investment portfolio that includes recommended companies, in balance with other sectors or investment vehicles.
  • Please see our First Principles and Disclosures for other guidelines.

For regular updates on blog posts, please follow @stackinvesting on Twitter. I plan to tweet articles of interest as they are published. Alternately, you can subscribe to a weekly email newsletter that summarizes blog posts from the prior week and lists recent news items of interest.

The content published on this blog is free to the public. I do not plan to charge a subscription for it at any point. I might add some promotional content in the future to help defer costs for hosting, but that will not impede access to coverage. My motivation is simply to share the analysis that I perform for my personal portfolio. I have found that writing down my assertions and subjecting them to public scrutiny has helped my investing process. Additionally, I feel my background might provide value to others, as they navigate the software investing landscape.

If you have questions about analysis or coverage, please contact me at analysis@softwarestackinvesting.com.

Podcasts and Conferences

The author has spoken at a few podcasts and conferences. These interviews provide more insight into his investing philosophy and top holdings at the time.