From commerce to culture, software is digitizing every aspect of our lives. The undeniable tailwinds fueling the industry have also led to strong returns for SaaS stocks lately as they’ve gained 36.7% over the past six months, outpacing the S&P 500’s 11.3% rise.

Nevertheless, investors should tread carefully as AI will commoditize many software products, and backing the wrong horse could result in hefty losses. With that said, here are three software stocks we think can generate sustainable market-beating returns.

GitLab (GTLB)

Market Cap: $11.33 billion

Founded as an open-source project in 2011, GitLab (NASDAQ:GTLB) is a leading software development tools platform.

Why Are We Backing GTLB?

1. ARR growth averaged 34.6% over the last year, showing customers are willing to take multi-year bets on its offerings
2. High switching costs and customer loyalty are evident in its net revenue retention rate of 127%
3. Superior software functionality and low servicing costs result in a best-in-class gross margin of 89%

At $71.50 per share, GitLab trades at 13.1x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

JFrog (FROG)

Market Cap: $4.12 billion

Named after the founders' affinity for frogs, JFrog (NASDAQ:FROG) provides a software-as-a-service platform that makes developing and releasing software easier and faster, especially for large teams.

Why Are We Fans of FROG?

1. Average billings growth of 27.5% over the last year enhances its liquidity and shows there is steady demand for its products
2. Customers use its software daily and increase their spending every year, as seen in its 118% net revenue retention rate
3. Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends

JFrog is trading at $37.77 per share, or 8.5x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.

HashiCorp (HCP)

Market Cap: $7 billion

Initially created as a research project at the University of Washington, HashiCorp (NASDAQ:HCP) provides software that helps companies operate their own applications in a multi-cloud environment.

Why Could HCP Be a Winner?

1. Software platform plays an irreplaceable role in customer workflows as its net revenue retention rate punches in at 112%
2. Prominent and differentiated software culminates in a stellar gross margin of 82.1%
3. Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient

HashiCorp’s stock price of $34.27 implies a valuation ratio of 9.4x forward price-to-sales. Is now the time to initiate a position? See for yourself in our full research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.