2 Network Software Stocks to Watch From a Prospering Industry

The Zacks Communication-Network Software industry is benefiting from digitalization, cloud adoption, and 5G/6G network deployments, with the industry outperforming the S&P 500, appreciating 23% in the past year. A10 Networks (ATEN), driven by AI-related data center demand, and Ondas (ONDS), experiencing strong demand for autonomous drone platforms with a $16.8 million order backlog and projected 2025 revenues of at least $25 million, are two stocks to watch; however, both have seen YTD share declines of 0.3% and 34.4% respectively, amid challenging macroeconomic conditions.

Analysis

The Zacks Communication-Network Software industry demonstrates robust health, having appreciated 23% over the past year, significantly outperforming both the S&P 500's 11.6% gain and the broader Zacks Computer and Technology sector's 10.6% return. This performance is supported by its Zacks Industry Rank of #93, placing it in the top 38% of industries and indicating bright near-term prospects. Key secular growth drivers include accelerating digitalization, widespread adoption of cloud-based solutions, the rapid deployment of 5G/6G networks, increased enterprise spending on advanced network security leveraging AI and machine learning, and a growing reliance on automation tools. Despite these tailwinds, the industry faces challenges from prevailing macroeconomic conditions, persistent inflation, and deferred capital spending by small and medium businesses due to higher interest rates. The industry currently trades at a trailing 12-month EV/Sales multiple of 2.68X, below the S&P 500 (5.19X) and its sector (7.08X), and close to its five-year median of 2.7X.

A10 Networks (ATEN), with a Zacks Rank #2 (Buy) and a positive sentiment score of 0.7, is well-positioned due to strong demand for its security and infrastructure solutions, particularly from AI-related data centers requiring high throughput, low latency, and integrated security. The company's initiatives in Bot Protection, DDoS mitigation, and GPU-based AI infrastructure support its 2025 outlook, which anticipates strong security revenue growth, although its shares have declined 0.3% year-to-date. The consensus EPS estimate for ATEN in 2025 remains steady at $0.88.

Ondas (ONDS), holding a Zacks Rank #3 (Hold) and a more neutral sentiment score of 0.2, is capitalizing on demand for its private wireless, drone, and automated data solutions, including its Autonomous Drone platforms. Ondas reported a Q1 2025 order backlog of $16.8 million and projects revenues of at least $25 million for 2025, driven by strong demand for its Iron Drone and Optimus platforms. However, its shares have significantly underperformed, declining 34.4% year-to-date. The consensus loss estimate for ONDS in 2025 has narrowed slightly to $0.39 per share.

Key Decisions for Investors

• Given the communication network software industry's strong past-year performance (23% appreciation) and favorable Zacks Industry Rank, driven by secular trends like digitalization and 5G, investors should consider maintaining or selectively increasing exposure, while remaining cognizant of macroeconomic headwinds impacting SMB capital expenditures.
• A10 Networks (ATEN), with its Zacks Buy rating and positive sentiment (0.7), warrants consideration for its strategic positioning in AI data center solutions and security growth prospects; its relatively flat year-to-date stock performance (-0.3%) amidst steady 2025 earnings estimates ($0.88 EPS) suggests potential upside if it executes on security revenue targets.
• Ondas (ONDS), despite a significant year-to-date share decline (-34.4%) and a Hold rating, presents a speculative opportunity given its $16.8 million order backlog and $25 million revenue projection for 2025 in the drone solutions market; closely monitor its ability to convert backlog to revenue and manage its path towards profitability, as indicated by the slightly narrowed loss estimate.
• The industry's EV/Sales multiple of 2.68X, while below broader market and sector averages, is near its historical median, suggesting that valuations are not broadly depressed; focus on companies with distinct technological advantages, strong execution, and clear paths to growth rather than relying on general sector multiple expansion.