In this article, we will look at the 10 Most Promising New Technology Stocks According to Hedge Funds.
Tech IPO Outlook 2024
After a prolonged slump, the technology IPO is experiencing a revival in 2024, particularly among companies leveraging artificial intelligence. According to a July 10 report by Morgan Stanley, the firm’s bankers predict to see at least 10 to 15 tech IPOs this year, driven by the growing interest in AI applications across various sectors, especially within technology and healthcare.
According to Colin Stewart, Morgan Stanley’s Global Head of Technology Equity Capital Markets, understanding a company’s role in the evolving AI landscape is crucial for its attractiveness to investors. Companies that demonstrate how AI can transform enterprise operations or customer interactions are more likely to succeed in going public.
The past few years saw a significant decline in IPO activity due to high interest rates and lower company valuations. Many tech firms opted to delay their offerings as capital became more expensive. However, as the market adjusts to these higher rates, companies are realizing they cannot postpone their IPOs indefinitely. The need for liquidity and public financing is prompting many large private firms to consider going public again.
AI has been a revolutionary addition to the healthcare segment as well. Companies are increasingly focused on harnessing vast amounts of data to drive improvements in patient care and medical research. By developing systems that can analyze complex datasets such as electronic health records, imaging data, and genomic information. These firms are positioning themselves as essential players in the healthcare ecosystem. The ability to generate proprietary datasets that power AI applications is becoming a key factor in attracting investor interest.
Read More: 10 Best Small-Cap Stocks Ready To Explode and 10 Cheap NASDAQ Stocks To Invest In Now.
Moreover, George Chan, the EY Global IPO Leader in a report regarding global IPO trends Q3 2024, highlighted several critical insights. His observations reflect a complex interplay of economic factors influencing IPO activity amid a backdrop of global challenges. Chan noted that the global IPO market in Q3 2024 has shown signs of cautious optimism, despite facing a global economic slowdown, market volatility, and geopolitical shifts. There was a year-over-year decline in both the number of IPOs and proceeds, down 14% to 310 IPOs and 35% to $24.9 billion. However, Q3 did see a modest increase in IPO launches compared to the first two quarters of the year.
The report emphasizes that the onset of a global interest rate easing cycle is crucial for shaping future IPO activity. As inflationary pressures diminish and central banks pivot towards stimulating economic growth, lower interest rates are expected to reduce the cost of capital for companies looking to go public. Chan pointed out that this shift could alleviate some financial burdens and encourage investment in new ventures, which is vital for revitalizing the IPO landscape. Despite overall declines in IPO volumes, he highlighted the resilience demonstrated by markets in the Americas and EMEIA.
The EMEIA region saw a remarkable 45% increase in IPO proceeds compared to the previous year, helping to mitigate the global downturn. Chan stressed that investor sentiment is shifting as they prepare for increased volatility in the second half of 2024. With inflation and interest rates receding, other factors are beginning to play more significant roles in influencing IPO decisions. He emphasized that well-timed market entries and compelling equity narratives will be crucial for businesses aiming to capitalize on available opportunities.
Lastly, the report also noted an uptick in cross-border listings, with an increase from 64 companies listing abroad in the same period last year to 77 this year. This trend reflects a growing preference among international companies for US markets due to their liquidity and favorable valuations. Chan indicated that as geopolitical tensions influence capital flows, investors are increasingly diverting funds from slower or unstable economies to more promising markets.
With this context, let’s take a look at the 10 most promising new technology stocks according to hedge funds.
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Our Methodology
To compile the list of the 10 most promising new technology stocks according to hedge funds, we used the Finviz stock screener and Q3 2024 hedge fund data by Insider Monkey. We used the screener to filter technology stocks with IPO dates within the past 3 years and then sorted them by market capitalization. Next, we sourced the number of hedge funds holding each stock and ranked the stocks in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Most Promising New Technology Stocks According to Hedge Funds
10. Klaviyo, Inc. (NYSE:KVYO)
Number of Hedge Funds: 24
Klaviyo, Inc. (NYSE:KVYO) is a technology company that specializes in helping businesses utilize their customer data to improve marketing efforts and drive sales. It provides tools that allow businesses to capture, store, and analyze their customer data.
The company announced its third-quarter results for fiscal 2024, underscoring significant business development. It not only launched its platform in five new languages, including German, Portuguese, Korean, Spanish, and Italian, bringing the total to seven supported languages. But also expanded its SMS marketing services to 18 countries, including Norway, Denmark, Sweden, Finland, Italy, and Portugal.
As of September 30, the total customer count of the company was over 157,000, up from more than 135,000 a year earlier. As a result of an increase in customers, its total revenue surged 34% year-over-year to reach $235.1 million. In addition, management was also able to improve its gross profit to $180.7 million from $117.0 million in the third quarter of 2023, representing a 10% increase in gross margins.
ClearBridge Small Cap Growth Strategy made the following comment about Klaviyo, Inc. (NYSE:KVYO) in its Q3 2023 investor letter:
“We began eight investments this quarter, including Klaviyo, Inc. (NYSE:KVYO), which made the transition from a private placement in the Strategy through the initial public offering process. We intend to augment these initial investments and build positions, provided company execution and market prospects remain vibrant.
Klaviyo is a founder-led software and database platform that provides marketing automation solutions primarily to smaller e-commerce customers. Leveraging a tight integration with e-commerce enablement provider Shopify and a disruptive technology architecture, Klaviyo has experienced rapid growth in a sizable core market, with opportunities to add additional products and customer groups, including the fitness/wellness market, and to expand internationally. Throughout its history, Klaviyo has managed to balance a robust growth rate with disciplined investment and has a path to meaningful long-term profitability.”
9. OneStream, Inc. (NASDAQ:OS)
Number of Hedge Funds: 24
OneStream, Inc. (NASDAQ:OS) is a technology company that specializes in financial management software. Its primary product is the Digital Finance Cloud, a platform designed to help businesses manage their financial operations more effectively. The platform not only combines all financial and operational data in a single place but also uses artificial intelligence to enhance planning and forecasting.
Finance departments are undergoing a digital transformation, however at a slower pace compared to other business areas. Many CFOs are recognizing the necessity for a cloud-based platform that consolidates financial and operational data into a single view. OneStream, Inc. (NASDAQ:OS) is aimed at modernizing the office of the CFO by unifying core finance and operational functions. At the recent Splash EMEA user conference, OneStream introduced several innovations to its platform including a navigation center, AI-powered anomaly detection, and expanded solutions exchange.
It is witnessing positive results as new users are subscribing to its services thereby driving its subscription revenue higher. During the third quarter of fiscal 2024, the company generated $129.1 million in revenue, up 21% year-over-year. Within the total revenue, subscription revenue accounted for $110.7 million indicating a 39% increase during the same time.
OneStream, Inc. (NASDAQ:OS) total customer count reached 1,534 indicating an 18% increase year-over-year. In addition to this, the company also went from being a negative free cash flow company in the same quarter last year to having a positive free cash flow of $1.3 million for the recent quarter. Looking ahead management is expecting Q4 revenue to be between $127 million to $129 million.