Microsoft and Oracle may be bargain stocks, according to this analysis

By Philip van Doorn and Christine Ji

Both stocks are relatively cheap on an earnings basis. And the companies have projected revenue growth rates much higher than that of the S&P 500.

Oracle and Microsoft are both projected to increase sales rapidly over the next two years, while their stocks are trading at attractive valuations following pullbacks.

The recent pressure on the software sector means some stocks backed by strong fundamentals are now trading at bargain levels.

Two high-profile examples are Microsoft (MSFT) and Oracle (ORCL), whose shares have fallen in recent months over dual concerns around massive artificial-intelligence spending and a potential slowdown in their software businesses. But that means these stocks now trade at attractive price/earnings multiples compared with the S&P 500 SPX, and with much better two-year projections for sales growth than the index as a whole.

Microsoft's stock is also cheap by Big Tech standards. Within the "Magnificent Seven" stocks, only Meta Platforms (META) has a lower forward price-to-earnings multiple, according to LSEG. And Microsoft is the only major cloud player that Bank of America said could see cash flow in excess of capital expenditures this fiscal year.

See also: Microsoft's stock is cheaper than IBM's for the first time in a decade. What that says about the AI trade.

Meanwhile, Oracle's stock trades below its three-year average forward P/E. D.A. Davidson analyst Gil Luria wrote that fears of AI disruption have become overblown, and he upgraded Oracle's stock to a buy rating from neutral on Monday. Luria said Oracle's products "will not be vibe coded away."

The recent selloff may have handed investors a compelling entry point into two software giants as they enter into their next phase of AI-led growth.

A broad screen for software stocks

To take a deeper look at software companies, we began with the S&P Composite 1500 Index XX:SP1500, which is made up of the S&P 500, the S&P MidCap 400 Index MID and the S&P Small Cap 600 Index SML.

For the screen, we used consensus revenue and earnings-per-share estimates from analysts polled by LSEG for calendar years, with adjustments for companies (such as Oracle) whose fiscal reporting periods don't match the calendar.

We confined the screen to companies covered by at least five analysts polled by LSEG and to those expected to be profitable in 2026 and 2027. This left us with a list of 55 stocks. Here are the 15 remaining companies with the highest projected compound annual growth rates (CAGR) for revenue from calendar 2025 through 2027, based on consensus estimates:

   Company                                Projected 2-year sales CAGR through 2027  Forward P/E  Forward P/E as of Dec. 31  2026 price change  2025 price change 
   Palantir Technologies Inc.                                                51.6%        100.7                      173.1               -20%               135% 
   Oracle Corp.                                                              33.4%         20.2                       25.2               -20%                17% 
   AppLovin Corp.                                                            32.0%         29.1                       45.5               -32%               108% 
   CrowdStrike Holdings Inc.                                                 21.7%         82.8                       99.1               -13%                37% 
   Fair Isaac Corp.                                                          21.0%         29.2                       38.9               -19%               -15% 
   Datadog Inc.                                                              20.6%         45.4                       56.9               -16%                -5% 
   Synopsys Inc.                                                             20.5%         28.7                       31.7                -7%                -3% 
   ServiceNow Inc.                                                           19.3%         23.9                       37.1               -32%               -28% 
   Take-Two Interactive Software Inc.                                        17.2%         26.1                       37.7               -20%                39% 
   AppFolio Inc.                                                             16.9%         26.9                       36.4               -21%                -6% 
   Guidewire Software Inc.                                                   16.4%         35.9                       60.0               -37%                19% 
   Microsoft Corp.                                                           15.9%         22.7                       27.4               -14%                15% 
   Trade Desk Inc.                                                           15.7%         12.3                       17.9               -29%               -68% 
   Waystar Holding Corp.                                                     14.0%         14.0                       20.1               -28%               -11% 
   Agilysys Inc.                                                             13.8%         40.6                       57.6               -28%               -10% 
                                                                                                                                                    Source: LSEG 

Palantir Technologies (PLTR) tops the list with a projected sales CAGR of 51.6% from 2025 through 2027. That compares with a weighted projected revenue CAGR of 7.7% for the S&P 500 and 18.6% for the S&P 500's information-technology sector.

But Palantir trades at a forward P/E of 100.7. That is the most recent closing share price divided by the consensus EPS estimate for the next 12 months. The valuation is way down from a forward P/E of 173.1 as of Dec. 31, but it is still very high compared with the weighted forward P/E of 22.4 for the S&P 500 and 26.1 for the IT sector.

Don't miss: Tech stocks have been shaky, but these 20 companies could still see rocketing sales growth

Among the analysts who believe in Palantir's long-term investment case is William Blair analyst Louie DiPalma. "Palantir won us over," he wrote in a note to clients last week after the company reported its fourth-quarter results. He expects the shares to return to about $200, where they were in November. The stock closed at $142.91 on Monday.

Palantir's growth provides "a longer-term view to valuation," DiPalma wrote. Citing the company's 70% increase in fourth-quarter revenue and its adjusted operating margin of 57%, he concluded: "There is no public software company or defense contractor even remotely in that vicinity."

There is an argument for investors to look beyond Palantir's current high P/E valuation and remain committed to long-term growth.

More from MarketWatch: Software stocks have been crushed. Here's how to play the sector as the dust settles.

Next up by sales CAGR is Oracle, which trades at a forward P/E of 20.2. That is a low valuation for this list, especially considering that Oracle's projected two-year sales CAGR is 33.4%, versus 7.8% for the S&P 500 and 18.6% for the IT sector.

Oracle's stock price shot up in September, when the company discussed several multibillion-dollar contract signings and teased more to come in the subsequent months. For calendar 2025, analysts polled by LSEG estimate that the company's revenue increased 13.8% to $62.8 billion. They expect sales to increase by 24.9% in calendar 2026 and then by another 42.5% in calendar 2027.

Shares of Oracle are down 55% from their September peak due to investor concerns regarding the company's debt levels and its reliance on OpenAI.

Don't miss: Software ate the world. Now, Wall Street is worried AI will eat software.

The stock climbed 10% on Monday, with investors seemingly more confident about Oracle's funding plans and OpenAI's aims to improve monetization. Much of that relief stems from Oracle's $25 billion bond sale last week. As the company's only planned debt issuance for the year, the offering cleared a significant overhang over the stock.

At current levels, Oracle's valuation is ascribing "negative value" to the company's relationship with OpenAI, Luria wrote on Monday, meaning that the relatively low P/E is only reflecting the value of Oracle's legacy software and database business. As such, investors are effectively being gifted the potential upside of the cloud infrastructure division, by Luria's analysis, provided that Oracle can successfully convert its massive contract backlog into revenue.

See more: Oracle's stock soars as analyst predicts 'pure upside' ahead for the battered cloud provider

Further down the list is Microsoft, with a two-year projected sales CAGR of 15.9% and a forward P/E of 22.7. The stock trades a bit higher than the S&P 500's P/E of 22.4, but its two-year sales-growth projection is more than twice that of the index.

Despite Azure revenue growing 39% year-over-year last quarter, the cloud segment fell short of investor expectations, leading the stock to fall 14% since Microsoft reported earnings on Jan. 28. BNP Paribas analyst Stefan Slowinski wrote last week that Microsoft should further accelerate cloud growth as it brings more capacity online.

Additionally, Microsoft's free-cash-flow profile is shaping up to be the most resilient among the Big Tech hyperscalers, meaning that Microsoft will have more cash to deploy through buybacks, which can boost EPS as share counts decline. Slowinski anticipated Microsoft's free-cash-flow margins to be around 22%, with other hyperscalers "potentially at 5% or lower." Microsoft's spending strategy could position it as "the more disciplined player" as investors demand a return on investment on these multibillion-dollar AI investments, Slowinski added.

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02-10-26 0815ET