Why Some SaaS Stocks Keep Winning

This week saw one of the biggest comebacks by software stocks, with Palantir, Twilio, Atlassian, and Zeta jumping on strong earnings, backing up our bullish call for the software industry we made in May… back when markets were afraid of the SaaSpocalypse.

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Year-to-date, The TPO Portfolio is delivering returns of 27%💪, compared to 17% for QQQ and 24% for AIQ.

This was an extremely busy week for the software industry.

Several companies such as Palantir PLTR 0.00%↑, Zeta ZETA 0.00%↑, AppLovin APP 0.00%↑, Axon AXON 0.00%↑, Datadog DDOG 0.00%↑, Twilio TWLO 0.00%↑, Atlassian TEAM 0.00%↑ and Cloudflare NET 0.00%↑ reported their quarterly earnings this week.

This mattered to The Pragmatic Optimist, as we have invested over 18% of our portfolio capital 💰 across our highest-conviction names in the software complex, along with a position in the Software ector ETF IGV IGV 0.00%↑ , in order to de-risk our portfolio from single-name volatility.

In May, we wrote two separate posts calling software’s inflection just as capital had just started rotating out of semis SMH 0.00%↑ into software. This is also the same time 📅 when we started building a position in IGV ETF for our TPO Portfolio, while selectively adding to Palantir at the same time.

Since then, the software industry as a whole has significantly outperformed both the S&P 500 and SMH, as can be seen below, which is one of the reasons why the TPO Portfolio too has outperformed several growth indices and other funds in July and on a YTD basis.

This week, Palantir’s earnings obviously shunned all doubters, gaining +30% after earnings. While AppLovin, Datadog, and Axon shares fell after earnings, several other companies such as Zeta, Atlassian, Twilio, and Cloudflare delivered exceptionally strong results.

In this post, we will discuss why some software companies keep winning and how we plan to position ahead in the sector for the TPO Portfolio.

📌On a YTD basis, The TPO Portfolio has delivered returns of 27 💪, compared to 17% for QQQ QQQ 0.00%↑ and 24% for AIQ 0.00%↑. Our portfolio remained exceptionally resilient during July, declining just (3.5)% compared to (8)% and (14)% for QQQ and AIQ, respectively.

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Let’s start with the software winners from this week.

Palantir kicked off the software earnings this week, with shares surging 30% the day after. Palantir has a big role to play in the overall software sentiment, as it is the third largest holding in the IGV ETF with a 9.34% weighting. This was followed by Zeta, which too saw its stock price gain between 11 and 13% post-earnings. Yesterday, Atlassian and Twilio reported their respective earnings after market close, and both these stocks are up 35% and 25% this morning, as of this writing.

On a YTD basis, Twilio and Zeta are now up 65% and 28%, respectively, while Palantir and Atlassian have also made significant progress climbing back from their March/April troughs after the sector was hit by a rock called “Agentic AI” that threatened to disrupt all SaaS.

So, what do these earnings have in common? It boils down to 4 metrics that we discuss below. 👇👇