Waystar, OneStream, Vertex Among Analyst Favorites As Solid Guidance Fuel Bullish Outlook

After a rough start to the year, small- and mid-cap software stocks may be finding their footing. Goldman Sachs analyst Adam Hotchkiss says first-quarter results across his coverage were better than feared, suggesting the worst of the downturn could be behind the sector.

With the median stock still down ~15% year-to-date, Hotchkiss highlights improved profitability, stable guidance, and growing management focus on AI monetization as key signs of a recovery narrative—especially for companies offering essential functionality and time-to-value in an uncertain enterprise IT spending environment.

Exiting fourth-quarter results, the analyst noted a “trough-on-trough” narrative emerges for several companies under coverage:

BlackLine, Inc BL
OneStream, Inc OS
Vertex, Inc VERX
Workiva Inc WK and
Similarweb SMWB.

Pockets of deal softness, tougher comps, and foreign-exchange impacted first-quarter guidance. But Hotchkiss noted that Q1 results and guidance were better than feared, and cleaner messaging won rewards.

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With year-to-date outperformers like Guidewire Software, Inc GWRE, OneStream, Waystar Holding WAY seeing multiples expand ~6% year-to-date despite 2025 consensus revenue estimates being revised up by just ~1%, on average, and underperformers (Similarweb, Sprout Social, Inc SPT, Workiva) seeing multiples contract ~42% over that same period with consensus estimates (FactSet) revised down just ~0.2%, on average, the analyst continues to think multiple expansion is likely to be the key driver for stock performance through the rest of the year.

Results in the quarter were better than expected, with revenue for the median stock in his coverage coming in ~1% ahead of pre-print consensus expectations.

Hotchkiss continues to prefer names with high visibility into second-half estimates (e.g., Vertex, Guidewire Software) and companies where fiscal year estimates are relatively de-risked versus first-quarter exit rates with a higher likelihood of delivering beat-and-raise quarters throughout the year (e.g., Waystar Holding, OneStream).

He noted that the first-quarter profitability margins came in ~1.3% above consensus expectations (median).

Hotchkiss anticipates elevated budget scrutiny will persist for his Front and Back office names, he is not currently anticipating further deterioration in the buying environment, something informed by his channel work and discussion with RepVue CEO Ryan Walsh in May on the Software Sales environment.

Given this, the analyst noted Q2 estimates as effectively de-risked following guidance generally in line with pre-print consensus expectations. For the Vertical Software categories he covered, the analyst noted that strong first-quarter results indicate end-markets that remain relatively insulated near-term, which he expects will persist through the second quarter.

Essential Functionality and Horizontal Platforms are the top key software characteristics within his GS Emerging Software Investment Framework. The analyst also acknowledges that Time-to-Value is becoming an increasingly important differentiator in an uncertain environment.

While companies within Hotchkiss’ SMID-cap software coverage have so far adopted a less aggressive approach towards AI investment and monetization, particularly compared to broader large-cap software, the analyst had observed a shift from management teams to more deliberately discuss the future AI roadmap.

While Hotchkiss expects adoption timelines across different sub-sectors and end markets to vary, he had observed an uptick in investments in AI use cases that will become an increasingly important differentiator for customers amidst elevated budget scrutiny and competitive landscapes.

Stocks across Hotchkiss’ Vertical software coverage are down ~10% year-to-date but up ~5% since printing first-quarter results (median).

Hotchkiss generally noted the vertical names as more insulated from broader macro pressure and expects performance from here to be driven by end-market-specific factors. He continues to view healthcare RCM, P&C Insurance, and bank technology as three areas of durable demand that are likely to support outperformers this year.

Stocks across Hotchkiss’ Back Office software coverage are down ~10% year-to-date but up ~16% since printing first-quarter results (median).

While companies generally outperformed in the quarter, Hotchkiss noted that the year-to-date share pullback reflects cautious investor sentiment in an environment challenging for large transformational software deals, particularly within the more risk-averse software buyer in the Office of the CFO.

Stocks across Hotchkiss’ Front Office software coverage are down ~29% year-to-date but up ~2% since printing first-quarter results (median).

Hotchkiss noted there is a challenging path for meaningful growth reacceleration that would drive stock outperformance for the remainder of the year for SEMrush Holdings, Inc SEMR & Sprout Social. On the other hand, the analyst noted Similarweb’s initiatives to monetize its data assets through investments in products (particularly AI) and go-to-market positively.

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