RBC Capital Markets is telling investors to expect better-than-expected quarterly results from several major software companies, based on its latest checks with resellers and early reads on the quarter. The investment bank raised its price targets on 12 of the 14 software firms it covers, with data platform Snowflake singled out as its "favorite growth idea" heading into the second half of the year.
In a note to clients, RBC analyst Matthew Hedberg said his firm's channel checks—conversations with the distributors and resellers that sell software to businesses—along with early quarter results across artificial intelligence, cybersecurity, and data software, make upside to Wall Street's expectations more likely. As a result, RBC lifted its price targets for a broad swath of the software sector.
Why reseller sentiment matters
Resellers are a key link in the software supply chain. They are the companies that package, market, and sell software licenses to end customers, often bundling them with services. When resellers report stronger demand or more optimism about upcoming deals, it is often an early signal that software companies will report healthy revenue growth in their next earnings reports.
RBC's checks point to stronger reseller sentiment heading into the second half of the year, which suggests that businesses are still spending on software despite a mixed macroeconomic backdrop. That is particularly notable for companies with heavy exposure to AI and cybersecurity, two areas where demand has remained resilient even as some other tech spending has slowed.
Snowflake and CrowdStrike get the biggest target hikes
Among the names RBC raised, Snowflake and CrowdStrike received the most significant increases. Snowflake's price target was lifted to $372 from $313, while CrowdStrike's was raised to $256 from $188.75. The firm also raised targets for other software providers it covers, though the brief did not specify which others.
Snowflake is a cloud-based data platform that helps companies store, manage, and analyze large amounts of data. It has been a major beneficiary of the AI boom, as businesses need robust data infrastructure to train and run AI models. CrowdStrike, meanwhile, is a cybersecurity company whose cloud-based platform protects endpoints—laptops, servers, and other devices—from cyber threats. Both companies are seen as leaders in their respective niches, and RBC's confidence in their upcoming results reflects a broader optimism about the software sector.
What this means for investors
For everyday investors, RBC's note is a signal that some of the biggest names in software may be poised to beat earnings expectations in the coming weeks. When a company beats estimates, its stock often rises, so this could be a positive catalyst for holders of these stocks.
However, it's important to remember that price targets are just one analyst's opinion, and they are not a guarantee of future performance. Software stocks can be volatile, and even a strong earnings report can lead to a selloff if the market had priced in even better results. As always, diversification and a long-term perspective are key.
Investors should also keep an eye on the broader earnings season. Several other sectors are reporting results, and the overall tone of corporate earnings can influence market sentiment. For example, McGraw Hill's recent beat shows that even good news can sometimes be met with a stock decline if expectations are high. Similarly, MongoDB's AI-native push is facing its own earnings test, highlighting the importance of execution in the AI space.
RBC's optimism is not isolated. Across the market, earnings outlooks have been climbing in recent weeks, and retailers like Target are also showing signs of recovery. The software sector, though, remains a key driver of market performance, and RBC's checks suggest that the AI-driven growth story is far from over.
The bottom line
RBC's channel checks and early quarter results point to a strong second half for software earnings, with Snowflake and CrowdStrike leading the pack. While price target hikes are not a buy signal, they do reflect a growing conviction among analysts that the software sector's growth is durable. For investors, the takeaway is to watch upcoming earnings reports from these companies closely, as they could provide a clearer picture of whether the AI boom is translating into sustained profits.
