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The artificial intelligence boom has taken Wall Street by storm this year, and UBS thinks certain lesser-known names can capitalize going forward. The bank initiated coverage of four names Monday with buy ratings: Clearwater Analytics, Intapp, SS & C Technologies and Thomson Reuters. The price target on three of those names implies upside of 30% or more. “Rate-fueled multiple compression offers investors opportunistic entry into high-quality, mission critical software businesses with TAMs [total addressable markets] growing low double-digits,” analyst Kevin McVeigh wrote. The analyst added that as specialized players within the technology services software industry have emerged, merger and acquisition activity has also increased, which has helped to minimize downside in some cases. “We also see vertical solutions surfacing in AI implementation as vertical players leverage niche-specific data to provide moated solutions and build domain-specific models consistent with best-in-class models,” he said. AI has been a boon for the broader stock market in 2023, especially earlier in the year. This has led to outperformance in tech-related companies during that time. Chipmaker Nvidia, for example, is the runaway winner year to date, up more than 200%. McVeigh thinks software-as-a-service provider Clearwater Analytics has a potential upside of more than 32%. Its stock has moved only fractionally from the start of the year, but the analyst attributed this underperformance in part due to concerns around the execution of the firm’s pricing strategy. CWAN YTD mountain CWAN YTD price graph “We see CWAN as a disruptive vertically integrated software platform poised to benefit,” he added. “We see optionality from cross sell + upsell and sales productivity amid highly underpenetrated total addressable market … Long term, we see runway to 80%+ gross margins and 40%+ EBITDA—consistent with a unique architected, efficient technology stack.” Cloud-based software provider Intapp could also have more than 30% upside despite rallying 43% year to date, according to McVeigh. INTA YTD mountain INTA YTD description “We see INTA as a beat-and-raise-story as it moves into new verticals, achieves deeper module penetration + benefits from operating leverage with its land-and-expand + word-of-mouth growth strategies,” the analyst wrote. “In 2023, we see the market discounting the durability of INTA’s growth amid concerns of macro headwinds.” McVeigh added the firm seems well-positioned to capture incremental share, which currently sits at 2.5%. SS & C Technologies , which specializes in providing software to the financial industry, could rally close to 39%. McVeigh believes the stock could rally as data use cases increase within financial services. “We see a well-positioned, predictable model, coupled with constructive fundamentals positioned for core consistent 4-7% organic revenue growth,” the analyst wrote. “SS & C is poised to perform as 8%+ FCF yield creates a floor for investors to capture its extensive focus on process automation, product depth across entire value chain, and alternative fund administration leadership fueling sustainable reaccelerating organic growth.” McVeigh also included Thomson Reuters on his list of buy-rated names, although he only sees 18% upside for the stock. — CNBC’s Michael Bloom contributed to this report.
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