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The Zacks Communication-Network Software industry players are suffering from challenging macroeconomic conditions and persistent inflation. Small and medium businesses have deferred capital spending on infrastructure buildout due to higher interest rates and inflation, which does not bode well for those in the space.

However, industry players like Ondas (ONDS - Free Report) and Genasys (GNSS - Free Report) are gaining from the ongoing digitalization efforts, including a shift to cloud computing and the rapid deployment of 5G-based networks. The strong demand for network security benefits industry participants, as a secure environment is required to run cloud-based applications. Industry players are also leveraging artificial intelligence (AI) and machine learning to develop security solutions, thereby providing better threat protection systems.

Industry Description

The Zacks Communication-Network Software industry comprises companies that provide software solutions supporting cloud, on-premise and hybrid environments, communication technology solutions, including broadband and Voice Over Internet Protocol, digital communication services delivered as software-as-a-service and telecom solutions, supporting the proliferation and the deployment of 5G and 6G networks, drone technology, and protective communications software.

There are a few companies that offer solutions based on the Open Radio Access Network standard. Others offer wireless connectivity solutions for mission-critical Industrial Internet applications and services. Solutions from these companies support a variety of industries, including telecommunications, technology, industrial, government, retail, financial, gaming, and education.

3 Trends Shaping the Future of the Communication-Network Software Industry

Increased Adoption of Cloud-based Solutions: Rapid digitalization, driven by the disruption caused by the pandemic, has increased the demand for cloud-based applications, virtualized software and container-based software. Applications are being developed in the cloud, which is creating opportunities and, at the same time, challenges for industry participants in terms of performance and security.

Rising cyberattacks, including Distributed Denial of Service attacks and attacks using malware through Transport Layer Security and Secure Sockets Layer protocols, are redefining the cyber threat landscape. Enterprises are spending more on cloud-based security solutions. Moreover, the software-defined approach is increasingly preferred over legacy hardware-centric models due to the need for agility. 

Growing Importance of Automation Tools: The ongoing rapid transition to the cloud has increased the importance of automation tools. Enterprises are adopting automated tools to deploy and operate security and application services. This is improving performance monitoring and detection, reporting security anomalies and reducing overall costs. 

Rapid Evolution of 5G and 6G Networks: Industry participants are benefiting from a continued rise in demand for data-intensive bandwidth and the need for reduced latency associated with smartphones, tablets, and machine-to-machine communication.

The proliferation of data centers, big data, cloud-based services, streaming media content, and IoT are key catalysts. The rapid deployment of 5G networks is creating a massive growth opportunity for telecom providers who are using solutions provided by industry participants.

The Zacks Industry Rank Indicates Dim Prospects

The Zacks Communication-Network Software industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #179, which places it in the bottom 26% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one. 

Given these bearish prospects, there are only a few stocks worth watching in this challenging industry. But, before we present these stocks, it is worth looking at the industry’s shareholder returns and recent valuation first.

The Industry Lags the Sector and S&P 500

The Zacks Communication-Network Software industry has underperformed the Zacks S&P 500 composite and its sector in the past year. The industry has dropped 11.4% over this period compared with the Zacks Computer and Technology sector’s return of 28.5% and the S&P 500’s appreciation of 15.9%.

One-Year Price Performance
 

Image Source: Zacks Investment Research

The Industry's Recent Valuation

On the basis of trailing 12-month EV/Sales, a commonly used multiple for valuing network software companies, we can see that the industry has been trading at 3X compared with the S&P 500’s 5.71X and the sector’s 8.08X.

Over the past five years, the industry has traded as high as 3X, as low as 2.56X, and with the median being 2.63X, as the charts below show.

EV/Sales Ratio (TTM)
 

Image Source: Zacks Investment Research
 

Image Source: Zacks Investment Research

2 Stocks to Watch Right Now

Presented below is a brief rundown of the previously-mentioned stocks to keep an eye on.

Ondas Networks

This Zacks Rank #3 (Hold) rated company is a provider of private wireless, drone, and automated data solutions.  

Ondas Networks provides wireless connectivity solutions enabling mission-critical Industrial Internet applications and services. Ondas Autonomous Systems’ (OAS) business unit develops and integrates drone-based solutions focusing on high-performance critical applications for government and Tier-1 commercial enterprises.

The company is benefiting from strong demand for its Autonomous Drone platforms. At the end of the third quarter of 2025, order backlog was $22.2 million. Based on strong demand for both Iron Drone and Optimus Ondas, the company expects orders to grow with revenues of at least $36 million for 2025.

Shares of Boston, MA-based Ondas have jumped 737.3% in the past year. The Zacks Consensus Estimate for Ondas’ 2025 loss has narrowed by 3 cents to 29 cents per share over the past 30 days.

Price and Consensus: Ondas Networks
 

Image Source: Zacks Investment Research

Genasys

This Zacks Rank #3 (Hold) rated company is a provider of Protective Communications solutions, including Genasys Protect software platform and Long Range Acoustic Device hardware products. The company is benefiting from growing awareness of its offerings due to the L.A. Fires, Signal Gate, and more recently, the floods in Texas. Moreover, targeted headcount reduction is expected to save $2.5 million annually.

Shares of San Diego, CA-based Genasys have declined 42.3% year-to-date. The Zacks Consensus Estimate for Genasys’ 2025 loss has been steady at 41 cents per share over the past 30 days.

Price and Consensus: Genasys
 

Image Source: Zacks Investment Research

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