In this article, we will look at the 16 Most Undervalued Tech Stocks To Buy Now.
Artificial Intelligence and Data Centers
Artificial intelligence is the hot center of the technology industry, especially with the introduction of Large Language Models (LLMs) like ChatGPT and Gemini. The AI revolution, which is underway, has affected the semiconductor market and we have seen chipmaker stocks skyrocket with it. However, semiconductor stocks are not the only beneficiaries, data centers also benefit greatly from the surge in AI.
According to Future Market Intelligence, the data center market is estimated at around $30.4 billion during 2024, it is expected to grow at a compound annual growth rate of 14.4% to reach $117.24 billion by 2034. Data centers were in demand before the AI boom as well, with data from Jefferies showing their demand rising 10% to 20% for the last 15 years before AI. However, AI accelerated the market to around 30% in just two years.
The capabilities of data centers and artificial intelligence are revolutionary, but that doesn’t overshadow the energy consumption concerns that come with them. As highlighted by Goldman Sachs Research, data centers consume around 1% to 2% of overall power worldwide, which seems manageable at first. However, they are likely to rise from 3% to 4% in just a decade.
We recently covered 15 Best Data Center Stocks To Buy According to Jefferies, Citi and Wall Street Analysts. It talks about the alarming power consumption challenge that comes with AI and data centers. Here’s an excerpt from the article:
“Naturally, since the US is responsible for ushering in AI, AI energy consumption in America is higher than that in other countries. According to the Boston Consulting Group, by 2030, AI power consumption will account for 16% of all of America’s energy use. It is expected to grow by 15% to 20% annually and touch as much as 130 GW, or the amount of electricity that’s used by 100 million homes. AI chip companies are also aware of these trends, with the latest AI chips promising to improve energy efficiency by 25x. Improving AI performance at the semiconductor level is important especially since some areas where data centers are growing are being forced to turn to coal power to reduce the power gap.”
While the expected power consumption figures are concerning, they also point towards a new market opportunity to introduce “sustainable AI factories”. Tim Rosenfield co-founder and co-CEO of Sustainable Metal Cloud, has introduced HyperCubes, which reduces energy consumption by up to 50%.
HyperCubes contains servers fitted with Nvidia processors, submerged in synthetic oil called polyalphaolefin. Synthetic oil draws heat from the processors more efficiently than air cooling systems typically used in most data centers.
These cubes are being used in Singapore and Australia. Tim Rosenfield mentioned that the technology enables high-density hosting for GPUs and that too sustainably with low energy consumption. The technology is also said to be 28% cheaper to install as compared to traditional cooling systems and is designed to be used in any data center around the globe.
The co-founder of SMC further mentioned that countries like Singapore are looking to push the “green” button for data centers and AI ambitions and the country has committed more than $379.7 million to the cause.
Countries like Singapore, where SMC is headquartered, are also looking to mitigate the hefty energy consumption by pushing for “green” data centers to support its AI ambitions where the country has committed more than 500 million Singapore dollars ($379.7 million). The company has also recently received funding from Singapore state investor Temasek-backed ST Telemedia Global Data Centers, one of Asia’s largest data center operators.
Now that we have talked about the recent developments in the tech sector. Let’s take a look at the 16 most undervalued tech stocks to buy now.
An engineer offering a demonstration of the ultra-low power FPGA technology.
Our Methodology
To curate the list of 16 most undervalued tech stocks to buy now we first identified 50 undervalued tech stocks that were most widely held by hedge funds. We looked at stocks that were trading under 20 times their forward earnings (the market’s P/E multiple is ~23x as of August 28, according to WSJ data), with earnings expected to grow during the year. Once we had an aggregated list of 50 undervalued tech stocks, we ranked them by short percentage of shares outstanding as of 8/15/2024, sourced from Yahoo Finance.
The list is ranked in descending order of short percentage of shares outstanding.
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).
16 Most Undervalued Tech Stocks To Buy Now
16. Alibaba Group Holding Limited (NYSE:BABA)
Short % of Shares Outstanding: 2.37%
Number of Hedge Fund Holders: 91
Forward Price to Earnings Ratio as of August 28: 9.21
Alibaba Group Holding Limited (NYSE:BABA) is a leader when it comes to the Chinese technology sector. It provides technology infrastructure and marketing reach to merchants through its e-commerce platform. Moreover, the company also provides cloud services and other technology solutions to its customers.
As of late, the Chinese tech giant has been facing some difficulties due to its huge market capitalization of $187.88 billion and increasing competition in the market. However, management knows how to regain the former glory. Alibaba Group Holding Limited (NYSE:BABA) has been betting heavily on Artificial Intelligence across all its business segments be it e-commerce or cloud computing services.
It has already been using AI features with its 24/7 chatbot services, recently management introduced AI to provide personalized recommendations to drive better sales through targeted marketing. Its cloud business is also witnessing improvement thanks to AI-driven products.
During the Fiscal Q1 2025, the overall revenue of the company grew 6% year-over-year, driven by double-digit growth in its cloud business. Most notably, its AI-related product revenue grew by triple digits, 155%. Management has shown its continued interest in investing in AI infrastructure and believes it can increase its cloud adoption and help maintain its market leadership.
In addition, Alibaba Group Holding Limited (NYSE:BABA) is also developing its Qwen 2.0 series of large language models through open-source development. Management believes that open-source development has significantly improved the model and has enhanced its safety features and ability to support more than 27 languages. The number of users using the company’s cloud AI platform has increased by 200% during the quarter, indicating continued growth.
BABA is cheap at current levels, it is trading at only 9 times its forward earnings, a 42% discount to its sector. Moreover, its earnings are also expected to rise by 2.70% during the year to reach $8.81.
It was held by 91 hedge funds in Q2 2024, with total stakes worth $3.81 billion. Appaloosa Management LP is the top share holder of the company with a position worth $756 million.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)
15. International Business Machines Corporation (NYSE:IBM)
Short % of Shares Outstanding: 2.24%
Number of Hedge Fund Holders: 54
Forward Price to Earnings Ratio as of August 28: 19.58
International Business Machines Corporation (NYSE:IBM) is a pioneer technology company that provides integrated solutions and services globally through its Consulting, Software, Infrastructure, and Financing Segments.
Its Software segment is also involved in hybrid clouds, AI platform integration, and transformation for enterprise use. Whereas, its consulting segment focuses on technology integration, operation integration, and strategy.
International Business Machines Corporation (NYSE:IBM) is leveraging its years of experience and AI enterprise to drive record revenues. CEO, Arvind Krishna was positive regarding the company’s second-quarter results and mentioned that revenue growth and free cash flow generated during the quarter exceeded their expectations.
Revenue grew 4% year-over-year to reach $15.8 billion and the year-to-date free cash flow amounted to around $4.5 billion. International Business Machines Corporation (NYSE:IBM) witnessed a strong performance in its software and infrastructure segments growing 8% and 3%, respectively. Strong performance within these segments was a testimony to the continued success of its hybrid cloud and AI strategy.
Management has infused AI across all its businesses and tools and is leveraging its automation products such as Apptio and Watson Orchestrate to drive growth. The company is in the process of acquiring HashiCorp, for its automation cloud infrastructure which is anticipated to boost its software segment substantially.
As a result of a strong quarter with growth across the board, management has raised its free cash flow guidance to over $12 billion for the year. CEO, Arvind Krishna believes that strong cash generation will allow the company to invest more in innovation to return more profits for the company and shareholders.
IBM is cheap at current levels, it is trading at 19 times its forward earnings, which is an 18% discount to its sector. Moreover, its earnings are also expected to improve by 5.70% to reach $10.17 during the year.
The stock was held by 54 hedge funds with stakes worth $837.6 million. Citadel Investment Group is the top share holder of the company with a position worth $383 million.
Diamond Hill Capital Long-Short Fund stated the following regarding International Business Machines Corporation (NYSE:IBM) in its first quarter 2024 investor letter:
“Among our bottom Q1 contributors short positions in Dick’s Sporting Goods, International Business Machines Corporation (NYSE:IBM) and Palomar Holdings. Though we believe the quality and durability of IBM’s free cash flow-generating capabilities remain questionable, investor sentiment has improved amid optimism for the company’s still-nascent AI product suite.”
14. Electronic Arts Inc. (NASDAQ:EA)
Short % of Shares Outstanding: 2.23%
Number of Hedge Fund Holders: 40
Forward Price to Earnings Ratio as of August 28: 19.52
Electronic Arts Inc. (NASDAQ:EA) is one of the top video game developers according to market capitalization. The company develops and distributes video games for various platforms, including consoles, PCs, and mobile phones. It generates revenue by selling its products (games and related software) and through service, which is recurring revenue and includes ongoing services such as subscriptions, downloadable content, and other gameplay transactions.
Some of the popular video game series by Electronic Arts Inc. (NASDAQ:EA) include EA SPORTS FC, Madden NFL, Battlefield, Apex Legends, The Sims, and Need for Speed. The company has one of the largest portfolios of games, with a huge fan following and engaging online communities, thereby giving it a competitive edge over its competitors.
The past 10-year performance of Electronic Arts Inc. (NASDAQ:EA) advocates for its profitability and robust fundamentals. It has been able to grow its top line by 7% and bottom line by 25% while improving its levered free cash flow by 6%.
Over the past 12 months, the company has achieved $7.1 billion in net bookings, out of which 75% was recurring revenue originating from Live Services bookings. The most recent quarter, FQ1 2025, marked a successful start to the fiscal year mainly on the back of double-digit growth in EA SPORTS Madden NFL bookings and record bookings for EA SPORTS FC Mobile.
The company also surpassed its net booking guidance for the quarter to reach $1.26 billion in net bookings. Although the net revenue took a hit and was down 14% year-over-year and operating expenses were up 2%, it was still able to grow its free cash flow by 3% year-over-year to reach $1.86 billion.
Looking ahead at the FQ2 guidance, management remains confident for an action-packed quarter with the upcoming Madden NFL 25 and FC 25. It has raised its net booking guidance to $1.95 billion to $2.05 billion, a 7% and 13% increase year-over-year.
Talking about valuation, EA is trading at 19 times its forward earnings. Moreover, analysts expect its earnings to grow by 10% during the year to reach $7.61 making it an undervalued tech stock to buy.
It is also popular among hedge funds and was held by 40 hedge funds during Q2 2024, with total stakes worth $819.8 million. D E Shaw is the top shareholder of EA, with a position worth $193.7 million.
13. TD SYNNEX Corporation (NYSE:SNX)
Short % of Shares Outstanding: 2.08%
Number of Hedge Fund Holders: 46
Forward Price to Earnings Ratio as of August 28: 10.39
TD SYNNEX Corporation (NYSE:SNX) is a major information technology distribution company, which was formed by the merger of Synnex and Tech Data in 2021. It sells a wide range of products and services including technology products, data center solutions, assembly and integration services, cloud services, and much more.
It operates through Cloud Services, Professional Services, Supply Chain Services, and Financial Services segments. The IT distribution services is a high-growth business model and the margins improve by distributing more software and services, TD SYNNEX Corporation (NYSE:SNX) has done well in capturing the market. It has more than 200,000 products and solutions, 2,500 plus OEMs and vendor partners, and more than 150,000 customers. It is an investor-favorite stock and was held by 46 hedge funds in Q2 2024, with total stakes worth $1.52 billion. Brave Warrior Capital is the top shareholder of SNX with a position worth $383.3 million.
The second quarter of 2024 was a testimony to the company’s profitability. It was able to grow its gross billings by $19.3 billion by 3% year-over-year, stemming from growth in all business areas, especially its Strategic Technologies segment. The Strategic Technologies segment, which focuses on next-generation technologies including cloud, cyber security, IoT, AI, and Data accounted for 25% of the gross billings.
Although the total revenue of the company was down 4% year-over-year, TD SYNNEX Corporation (NYSE:SNX) was still able to improve its gross margins by 27 base points. Management believes that the market has stabilized and remains confident to improve their revenues and gross billing prospects during the remaining half of fiscal 2024.
The prospects of growth are bright, as the company has well-positioned itself to leverage the growing AI market. TD SYNNEX Corporation (NYSE:SNX) has entered into vendor partnerships and launched IBM’s Watson Gold 100 Program to accelerate AI opportunities for partners. Moreover, the company has also been named a design partner for NVIDIA’s HGX product line.
Looking at the FQ3 guidance, management expects revenue between $13.3 – $14.9 billion and gross billings to reach $20.1 billion. The increased guidance is fueled by its PC refresh cycle, customer investment in data center and cloud deployments, and its increased investment in AI ventures.
SNX is undervalued at current levels. It is trading at only 10 times its forward earnings, a 57% discount to its sector, and its earnings are also expected to grow by 4.40% during the year to reach $11.8.
FPA Queens Road Small Cap Value Fund stated the following regarding TD SYNNEX Corporation (NYSE:SNX) in its Q2 2024 investor letter:
“TD SYNNEX Corporation (NYSE:SNX) is an information technology (IT) distributor formed through the merger of Tech Data and Synnex in 2021. IT distribution is an attractive business model that grows at a GDP+ rate with the opportunity for margin improvement through selling more software and services, although with some cyclicality. The IT distributors have historically traded cheaply, usually at less than 10x earnings.22 We have owned Synnex since 2012 and Tech Data from 2010 until it was taken private by Apollo in 2020. SNX has performed well on the back of a strengthening IT market, particularly for PCs.”
12. Fidelity National Information Services, Inc. (NYSE:FIS)
Short % of Shares Outstanding: 1.91%
Number of Hedge Fund Holders: 59
Forward Price to Earnings Ratio as of August 28: 15.90
Fidelity National Information Services, Inc. (NYSE:FIS) operates in the financial technology industry more commonly known as the Fintech industry. It provides a range of technologies for financial institutions and businesses to enhance their digital transformation. It operates through three main segments including Banking Solutions, Capital Market Solutions, and Corporate and Other Solutions.
The Banking Solutions segment provides complete banking systems and related applications including mobile and online banking platforms. Whereas, the Capital Market Solution provides trading and asset management tools that facilitate lending and loan syndication services.
Fidelity National Information Services, Inc. (NYSE:FIS) has remained profitable over the past decade, however, the growth has remained in the single digits. Over the past 10 years, its revenue has grown by 5% and net income by 3%. Therefore, management has sensed the urgency to reposition the company to a more sustainable growth trajectory.
To accomplish this, the company is now focusing on higher-value software-based solutions that meet clients’ needs while providing Fidelity National Information Services, Inc. (NYSE:FIS) a multiyear recurring revenue. As a result, during fiscal 2023, the company reduced its cost by more than $550 million and expects a total cost saving of $1 billion by 2024. Leveraging, its recurring revenue management was also able to exceed its 2023 free cash flow target by more than $500 million.
Investors believe that the company’s client-centric approach topped with its brand recognition offers significant room for growth. It was held by 59 hedge funds during Q2 2024, with stakes amounting to $2.36 billion. Lyrical Asset Management is the top share holder of the company with a position worth $326.46 million.
Fidelity National Information Services, Inc. (NYSE:FIS) is undervalued at current levels and has proven its profitability in its most recent quarter results. It is trading at 16 times its forward earnings. Its earnings are expected to grow by 51% during the year to reach $5.1.
During the fiscal second quarter of 2024, the cost-saving efforts and a better revenue mix continued to deliver growth for the company. Its adjusted revenue grew 4% year-over-year to reach $2.5 billion delivering EBITDA margins of 40.1%, up 110 base points from the previous year.
Management has improved its full-year guidance after gaining some confidence from its cost-saving efforts. It now expects revenue between $10.12 – $10.17 billion, with adjusted EBITDA margins at 40.7%, indicating a modest increase from the previous year.
Invesco Growth and Income Fund stated the following regarding Fidelity National Information Services, Inc. (NYSE:FIS) in its Q2 2024 investor letter:
“Given that many equity indexes reached record highs, valuation opportunities were limited and portfolio activity was somewhat muted. We purchased new holdings in financials, health care and IT. Fidelity National Information Services, Inc. (NYSE:FIS): The company is a leading global provider of financial services technology solutions for financial institutions, businesses and developers. The company has lagged its peers in recent years due to numerous acquisitions that increased its debt. However, a new CEO and CFO have made efforts to right size the firm and refocus on its core banking and capital market businesses by selling a partial stake in a recent acquisition. As a result, we believe the company should be able to increase selling opportunities, grow earnings and potentially return capital to shareholders.”
11. JD.com, Inc. (NASDAQ:JD)
Short % of Shares Outstanding: 1.89%
Number of Hedge Fund Holders: 59
Forward Price to Earnings Ratio as of August 28: 6.79
JD.com, Inc. (NASDAQ:JD) is a Chinese technology-driven e-commerce company and internet service provider. The company has strong brand recognition in the region and has an unmatched fulfillment service thanks to its efficient logistics department.
It was held by 59 hedge funds in Q2 2024, with total stakes totaling $1.34 billion. Alkeon Capital Management is the top share holder of the company with a position worth $171.4 million.
The company is expected to see stable margin growth, originating from its letting go of unprofitable businesses such as Jingxi, community group purchases, and other international businesses. Management is now focused on improving its high-growth businesses.
JD.com, Inc. (NASDAQ:JD) has increased its business scale from 1P to 3P businesses, which is expected to drive more transaction volumes and enhance profitability. During the second quarter of 2024, net revenues of the company reached $40.90 billion, increasing modestly by 1.2% year-over-year due to seasonal fluctuations.
If we look at the segment-wise breakdown, the services revenue improved 6.3% year-over-year contributing around $32.83 billion to the net revenue. Despite slow revenue growth, JD.com, Inc. (NASDAQ:JD) was still able to achieve the highest single-quarter non-GAAP net profits of $2.04 billion by leveraging its large-scale supply chain advantage.
Moreover, its 5-year history also advocates for its profitability with the top line growing 17% and the bottom line growing 38% during the time. Looking ahead, management remains confident to accelerate its revenue growth, while maintaining a balance between free cash flow generating and net income.
Wall Street is also bullish on the stock, 47 analysts have a strong Buy rating on the JD, with their 12-month median price target of $40 presenting an upside of 51% from the current price level. It is also cheap at current levels as it is trading at only 7 times its forward earnings, a 58% discount to its sector, with earnings expected to grow by 27.30% during the year to reach $3.96.
Ariel Global Fund stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
10. Block, Inc. (NYSE:SQ)
Short % of Shares Outstanding: 1.73%
Number of Hedge Fund Holders: 59
Forward Price to Earnings Ratio as of August 28: 18.83
Block, Inc. (NYSE:SQ) is a financial services and digital payment company, that develops payment platforms for small and medium business owners allowing them to digitally manage their sales and finance operations.
It offers Square and Cash App. The Square app allows businesses to manage retail, appointments, Points of Sale, card payments, and much more digitally through their computers. Moreover, the Cash App allows peer-to-peer transactions such as payments, bitcoins, and investment brokerage.
The interconnectedness of Block, Inc.’s (NYSE:SQ) business model gives it a competitive edge over the market. Both business segments make their customers dependent on the platform thereby contributing to constant revenue growth. Moreover, as a result of its services to a large number of businesses, the company has a bank of data that also gives it a strategic edge to grow its business subsequently.
SQ is an investor’s favorite stock. It was held by 59 hedge funds in Q2 2024, with total stakes worth $2.68 billion. ARK Investment Management is the top share holder of the company with a position worth $534.7 million.
Both the business segments proved their profitability during the fiscal second quarter of 2024. The Square segment gross profits were up 15% year-over-year at $923 million and the Cash App profit amounted to $1.3 billion improving 23% year-over-year. As a result, the combined profit reached $2.23 billion indicating a robust 22% growth when compared to the previous year.
Management has set its bar high in terms of growth. It stays committed to the “Rule of 40”, which entails that the sum of a company’s annual revenue growth and its profit margins should be equal to or greater than 40%.
As of the second quarter, Block, Inc. (NYSE:SQ) improved its adjusted EBITDA to $759 million, increasing more than twice year-over-year. Moreover, its twelve-month trailing free cash flow in June was recorded to be $399 million, twice when compared to the previous year,
Block, Inc. (NYSE:SQ) strong cash generation capability combined with its ecosystem of growth from both segments offers significant room for growth. The company also presents an attractive entry point. It is trading at 19 times its forward earnings, while the market average sits at 24. Moreover, its earnings are also expected to grow by 100% to reach $3.6 during the year. Thereby making it an undervalued tech stock to buy now.
Baron FinTech Fund stated the following regarding Block, Inc. (NYSE:SQ) in its Q2 2024 investor letter:
“Block, Inc. (NYSE:SQ) provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares gave back gains from earlier this year despite reporting strong quarterly results and raising full-year guidance. In the first quarter, gross profit grew 22% and EBITDA grew 91%, both exceeding Street expectations. Given the strong start to the year, second-quarter guidance of 16% to 17% gross profit growth may have disappointed some investors. Management remains committed to a “Rule of 40” investment framework in 2026 with at least mid-teens gross profit growth and a mid-20% operating margin. We continue to own the stock due to Block’s long runway for growth, durable competitive advantages, and innovative product offering.”
9. Flex Ltd. (NASDAQ:FLEX)
Short % of Shares Outstanding: 1.68%
Number of Hedge Fund Holders: 46
Forward Price to Earnings Ratio as of August 28: 13.27
Flex Ltd. (NASDAQ:FLEX) is an international manufacturing company that provides end-to-end solutions for various industries. The two main business segments of the company include Agility Solutions and Reliability Solutions.
The portfolio of manufacturing solutions provided by the company ranges from communication, cloud, and consumer devices to complex solutions for the automotive, health, and industrial sectors. It also provides data solutions and caters to high-growth industries including next-generation mobility, AI, and autonomous vehicles.
The company hired a new CEO back in 2020, since then it has entered an era of strategic pivot towards high-value products such as health care, industrial, automotive, and cloud infrastructure. These sectors account for more than 60% of the company’s revenue and are expected to grow higher.
Flex Ltd. (NASDAQ:FLEX) grew its gross margins and operating profits despite a slight decline in year-over-year revenue. Revenue of $6.3 billion was up 2% subsequently and down 8% year-over-year. However, Gross profits and operating profits of the company improved by 50 base points during the same time indicating its ability to remain profitable during headwinds.
What’s noteworthy about Flex Ltd. (NASDAQ:FLEX) is that both its segments performed above expectations. The reliability segment was led by strong demand for power and medical devices, whereas Agility benefited from effective cost management.
Management focus on high-growth sectors such as automotive and next-generation autonomous vehicles is poised for significant growth as the overall industry improves. It has also positioned itself to benefit from the growing EV sales as it directly provides solutions for the powertrain sector.
FLEX is undervalued at current levels. Its earnings are expected to grow 13.00% during the year to reach $2.43. Moreover, it is only trading at 13 times its forward earnings, which is a 44% discount to its sector. The stock was held by 46 hedge funds during Q2 2024, with stakes totaling $923.82 million. Lyrical Asset Management is the top share holder of the company with a position worth $273.3 billion.
Artisan Small Cap Fund stated the following regarding Flex Ltd. (NASDAQ:FLEX) in its first quarter 2024 investor letter:
“We initiated new GardenSM positions in Flex Ltd. (NASDAQ:FLEX), On Holding and Onto Innovation during the quarter. Flex provides outsourced electronic manufacturing services to a diverse set of end markets. The company hired a new CEO in 2020, who has been driving a strategic pivot toward manufacturing high-value products in areas such as health care, industrial, automotive and cloud infrastructure. Today, these higher value items account for ~60% of revenues, and we believe they will continue to tick higher. We also believe an improving business mix, along with the reshoring of supply chains, will lead to faster growth and higher margins.”
8. Comcast Corporation (NASDAQ:CMCSA)
Short % of Shares Outstanding: 1.44%
Number of Hedge Fund Holders: 61
Forward Price to Earnings Ratio as of August 28: 9.60
Comcast Corporation (NASDAQ:CMCSA) is one of the biggest media and internet providers in the United States. It provides internet and TV services to homes and businesses, Media and Streaming services, Theme Parks, and Advertising Services.
Despite a competitive market, due to price-conscious customers, the company has maintained a market-leading position by securing over 32 million broadband customers. Management has remained focused on its broadband and park segments throughout several past quarters.
As a result, Comcast Corporation (NASDAQ:CMCSA) was able to grow its residential connectivity revenue by 6% and domestic broadband revenue by 3% year-over-year. Moreover, the company added 322,000 wireless lines and reached a 12% penetration rate in the domestic broadband market.
Management believes the right balance between rate and volume is a key priority amidst a challenging market condition. Therefore it is pertinent to maintain a healthy average revenue per user (APRU). During the second quarter of 2024, the company was able to maintain its APRU growth rate at 3.6%, well between its historic average of 3%-4%.
Its historic growth trajectory advocates robust fundamentals. Over the past 10 years, Comcast Corporation (NASDAQ:CMCSA) has grown its top line by 6% and bottom line by 7%. Moreover, it has grown its levered free cash flow by 16% during the same time.
CMCSA is an undervalued tech stock to buy now. It is trading at only 10 times its forward earnings, a 29% discount to its sector. On the other hand, analysts expect its earnings to grow by 5.5% during the year to reach $4.2.
It is also popular among hedge funds and was held by 61 hedge funds during Q2 2024, with total stakes worth $3.7 billion. First Eagle Investment Management is the top shareholder of the company, with a position worth $1.25 billion.
7. Twilio Inc. (NYSE:TWLO)
Short % of Shares Outstanding: 1.36%
Number of Hedge Fund Holders: 54
Forward Price to Earnings Ratio as of August 28: 18.30
Twilio Inc. (NYSE:TWLO) is a cloud communication specialist that allows companies to improve their customer communications through its customer engagement platform (CEP). The company allows its customers to reach their audience through voice, text, emails, and other mediums.
Investors had forgotten about the stock due to its weak performance previously, however, thanks to its AI integration the company delivered cheerful results during its second quarter of 2024. Twilio Inc. (NYSE:TWLO) reported revenue growth of 4% year-over-year to $1.08 billion and organic growth of 7%. The company exceeded its original guidance range of $1.05 billion to $1.06 billion.
While revenue growth is impressive, what’s more notable are the factors that led to this growth. The company was able to improve its active customer base from 304,000 customers a year ago to 316,000 customers during Q2 2024. Moreover, Twilio Inc. (NYSE:TWLO) also witnessed improvement in customer spending as its dollar-based net expansion was 102% during the last quarter.
For context, dollar-based net expansion means that the company was able to generate more income from its existing customer base. This improvement was mainly due to its adoption of AI in its customer service space, which is expected to keep the growth needle moving in the long run.
TWLO is also trading at a 25% discount to its sector and its earnings are expected to grow by 38.40% during the year to reach $3.39. Thus, making it an undervalued tech stock to buy now.
54 hedge funds held the stock in Q2 2024, with stakes totaling $1.95 billion. Generation Investment Management is the top share holder of the company with a position worth $338.55 million.
Aristotle Atlantic Focus Growth Strategy made the following comment about Twilio Inc. (NYSE:TWLO) in its Q4 2022 investor letter:
“We sold Twilio Inc. (NYSE:TWLO) and thereby reduced our subsector weight in software. The company reported a decent third quarter, but disappointed on fourth quarter 2022, full year 2023, and long-term guidance. The company is seeing macroeconomic headwinds and a slowdown spreading from technology, social media and cryptocurrency to retail and e-commerce. The other negative disclosure and a driver of this gross margin “miss” was that Twilio’s software sales are not accelerating at the rate that we expected. We are disappointed with this lower topline and low operating margin improvement guidance. The business transformation is taking longer than expected, and there is the heightened possibility that the new software growth could be stifled by more formidable competition as Twilio has made too many missteps.”
6. Dell Technologies Inc. (NYSE:DELL)
Short % of Shares Outstanding: 1.27%
Number of Hedge Fund Holders: 88
Forward Price to Earnings Ratio as of August 28: 14.49
Dell Technologies Inc. (NYSE:DELL) is a widely known PC brand, it also sells storage, networking, and artificial intelligence servers for data centers. It is an investor’s favorite stock, we say this because it was held by 88 hedge funds in Q2 2024, with stakes worth $2.88 billion. Coatue Management is the top share holder of the company with a position worth $1 billion.
The company is still mainly dependent on the PC market, which is growing at a sluggish rate, thereby justifying its flat revenue growth rate for the client solutions segment during FQ1 2025. However, Dell Technologies Inc. (NYSE:DELL) is positioning itself to capitalize on a high-growth market i.e. the AI server market.
The FQ1 2025, of the company was led by a robust 22% growth in its infrastructure group, which includes AI servers. This robust growth overshadowed the sluggish PC segment to grow the company’s revenue by 6% to reach $22 billion.
The AI server market in general is fairly new, and tech companies are looking to capture this market. Its AI server backlog suggests that Dell Technologies Inc. (NYSE:DELL) has already positioned itself to grow with the market. AI server backlog increased more than 31% subsequently to reach $3.8 billion during the quarter.
Management is confident in long-term growth as the major tailwind from increased spending in the IT sector is contributing growth of its business. It expects full-year revenue growth at 8% and adjusted earnings growth at 7% for the fiscal year.
Long-term growth prospects topped with analysts’ expectations of 8.00% earnings growth to reach $7.7 this year making DELL attractive at current levels. It also looks downright cheap with its forward Price to Earnings ratio at only 14%, a 39% discount to its sector.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its first quarter 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) reported results that exceeded earnings expectations and announced a better than expected AI-optimized server order pipeline. We expect Dell to participate in the growth of artificial intelligence hardware in its server, storage and personal computing franchises. Long-term, we like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
5. Johnson Controls International plc (NYSE:JCI)
Short % of Shares Outstanding: 1.27%
Number of Hedge Fund Holders: 46
Forward Price to Earnings Ratio as of August 28: 19.44
Johnson Controls International plc (NYSE:JCI) provides technology solutions for buildings, energy products, integrated infrastructure, and next-generation transportation systems. Its portfolio of technology products includes fire, security, HVAC, power solutions, and energy storage that serves large-scale commercial and small-scale home setups.
It has operations in North America, Europe, and Asia, and is in contract to provide its technologies for various government and commercial facilities.
Johnson Controls International plc (NYSE:JCI) has been away from investor eyes due to its sluggish performance in the past. Over the past 5 years, the company grew its revenue by only 2.44% and dropped its bottom line by around 23%.
However, the stock has popped up again as a prominent activist Elliott Investment Management built a position worth more than $1 billion in the company. Since the start of 2024, the stock has gained more than 24% and investors are buying with expectations that Elliott has plans to boost the share price. Moreover, JCI is also popular among hedge funds and was held by 46 hedge funds, with total stakes worth $2.52 billion. Fisher Asset Management is the top share holder of the company with a position worth $982.8 million.
On July 31, Johnson Controls International plc (NYSE:JCI) announced its FQ3 2024 earnings results with margin expansion exceeding the company’s expectations. The company delivered organic sales growth of 3% in line with its guidance and delivered 150 base point expansion to its segment margins to 17.9%, exceeding expectations of 17%.
Management has indicated its strategic ambition of becoming a pure-play data center solutions company. It has been making significant investments to build technologies for data center solutions and has built a leading market position in North America. The company grew its order backlog by 10% during the quarter giving confidence to its investors for long-term growth.
Management faces some pressure from its ongoing business transformation concerning the divestitures of its Residential and Light Commercial HVAC business and Air Distribution Technologies business. However, regardless, the company generated over $500 million in free cash flow and also witnessed a 9% growth in its service revenue.
Moving ahead, management expects 7% sales growth in Q4, with improved EBITDA margins at 19% and diluted EPS of $1.23 to $1.26. JCI is undervalued at current levels, making it an attractive investment opportunity. It is trading at 19 times its forward earnings, while the broader market average sits at 24. Moreover, its earnings are also expected to grow by 5% during the year to reach $3.67.
Diamond Hill Capital Mid Cap Strategy stated the following regarding Johnson Controls International plc (NYSE:JCI) in its first quarter 2024 investor letter:
“Though valuations have increased, we continue identifying high-quality companies we believe the market is overlooking. We accordingly initiated four new positions in Q1: Generac Holdings, Diamondback Energy (FANG), Johnson Controls International plc (NYSE:JCI) and Humana. We initiated a position in Johnson Controls (JCI), a leading provider of HVAC, security and fire detection/suppression and building management systems as we believe the company is well-positioned to benefit from the secular trend toward smart buildings and a shift to high-margin services. While JCI has not executed particularly well recently, we believe the market has overreacted to these issues while also underappreciating the potential magnitude of the aforementioned secular tailwinds. We accordingly capitalized on the opportunity to establish a position at a steep discount to JCI’s HVAC peers and our estimate of intrinsic value.”
4. Emerson Electric Co. (NYSE:EMR)
Short % of Shares Outstanding: 1.23%
Number of Hedge Fund Holders: 51
Forward Price to Earnings Ratio as of August 28: 18.97
Emerson Electric Co. (NYSE:EMR) is a leading international technology and engineering conglomerate. The company operates its core business in two main industries, the automation solutions, and commercial and residential solutions market.
The strategic strength of the company stems from its clear vision of becoming a leader in automation solutions. Management has shown dedication to this commitment by developing a robust portfolio of automation technologies that are being widely used in various industries globally. Moreover, it has also finalized its exit agreement from the Copeland business to focus on higher growth markets.
It has already positioned itself to lead the automation market, currently, it controls more than 60,000 wind turbines globally, automates one of the largest green hydrogen facilities, powers automation for more than 50% of North America’s power generation, and most notably around 69% of the electric vehicles manufactured in 2023 were automated using Emerson Electric Co’s. (NYSE:EMR) technology.
Synonymous with its market-leading position, its FQ3 2024 financial results are also encouraging. Its underlying orders and sales grew 3% year-over-year, delivering gross profit margins of 52.8%. Moreover, it also surpassed its adjusted EPS guidance by posting $1.42 earnings while the expectations were between $1.38 and $1.42.
Emerson Electric Co. (NYSE:EMR) also demonstrated strong free cash flow generation of $975 million during the quarter and has an order backlog of more than $7.4 billion, indicating long-term growth prospects.
EMR is one of the best-undervalued tech stocks to buy now, with a forward Price to Earnings ratio of 19%, a 4% discount to its sector. Moreover, analysts expect its earnings to grow by 23.4% during the year to reach $5.48.
It was held by 51 hedge funds in Q2 2024, with total stakes worth $1.13 billion. Millennium Management is the top shareholder of the company with a position worth $173 million.
3. Fiserv, Inc. (NYSE:FI)
Short % of Shares Outstanding: 1.20%
Number of Hedge Fund Holders: 73
Forward Price to Earnings Ratio as of August 28: 19.49
Fiserv, Inc. (NYSE:FI) is a leading fintech company that provides a range of solutions to help businesses process and manage payments and transactions. The company operates through two main business segments, namely Merchant solutions and Financial Solutions.
It also provides a cloud-based Point-of-Sale (POS) software, called Clover for businesses which has been driving robust revenue growth for the company. The FQ2 2024, was led by a strong 28% growth in Clover revenue. The platform reached $313 billion in annualized gross payment volume (GPV) up 17% year-over-year. Moreover, its value-added services (VAS) penetration rate also improved by 20% during the same time, indicating a growing market usage.
Overall, a robust quarterly performance, with adjusted revenue of $4.8 billion growing 7% and adjusted earnings per share up 18% year-over-year, led to a rise in full-year guidance. Management now expects adjusted EPS between $8.65 – $8.80 and has also improved its free cash flow guidance to $4.7 billion from $4.5 billion.
In addition, Fiserv, Inc. (NYSE:FI) is also expanding its products and service offerings. Management has indicated plans to introduce the Clover platform for restaurants adding more customers to its already profitable platform. Over the past 5 years, the company has grown its top line by 27% and bottom line by 29.14%. Investors are keeping an eye on its performance, the stock has gained more than 39% over the year to reach its all-time high of $171.19.
FI is still undervalued despite huge gains, it is trading at 19 times its forward earnings. Analysts expect its earnings to grow by 16.20% during the year to reach $8.74.
It was held by 73 hedge funds in Q2 2024, with stakes totaling $2.5 billion. Harris Associates is the top share holder of the company with a position worth $2.20 billion.
Baron FinTech Fund stated the following regarding Fiserv, Inc. (NYSE:FI) in its first quarter 2024 investor letter:
“Payments was another standout theme thanks to double-digit gains from global payment companies Mastercard Incorporated and Fiserv, Inc. (NYSE:FI). Fiserv shares rose in response to robust quarterly earnings, supported by strength in Clover, its point-of-sale system for small businesses. Clover revenue jumped 30% with greater adoption of value-added services. Despite investor concerns about macroeconomic weakness potentially impacting Fiserv’s outlook, the company reaffirmed its 2024 guidance. We remain optimistic as Fiserv continues to execute well on its long-term vision, and we believe Clover will play a key role in driving growth for the company in the years ahead.”
2. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC)
Short % of Shares Outstanding: 0.70%
Number of Hedge Fund Holders: 41
Forward Price to Earnings Ratio as of August 28: 14.39
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is a global provider of software and related services for the finance and healthcare sector. Their software helps businesses manage operations effectively with a special focus on data handling and other complex processes.
They operate through Financial Services, Healthcare Solutions, Software-Enabled Solutions, and other Professional services. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) has a track record of successful strategic acquisitions to grow its business and has integrated more than 50 companies since 1995. These expansions have given the company a strategic edge firstly through the market reach it has gained through expansion and secondly by its growing software services portfolio.
The fiscal Q2 2024, was a testimony that these acquisitions have turned out to be profitable for the company. Its second-quarter growth was led by Intralinks, a key subsidiary of SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) incorporated in 2018. The subsidiary, now one of the business segments for the company grew 16.1% during the quarter to deliver 6.5% adjusted revenue growth for the company.
SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) has been facing debt issues recently, however, management has been quick to address the issue and paid down $25.2 million in debt during the quarter. Moreover, it expects full-year revenue to grow to $5.79 billion with earnings margins at 38.7%, both indicating substantial improvement year-over-year.
SSNC is one of the most undervalued tech stocks to buy now. It is trading at 14 times its forward earnings, a 27% discount to its sector. Analysts expect its earnings to rise by 11.90% during the year to reach $5.16.
SSNC was held by 41 hedge funds in Q2 2024, with total stakes worth $2.53 billion. Pzena Investment Management is the top share holder of the company with a position worth $890.4 million.
Giverny Capital Asset Management stated the following regarding SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) in its fourth quarter 2023 investor letter:
“It’s a bit like two neighbors, both young and with excellent incomes. If one diligently saves a good portion of their income, dollar cost averages regularly into the stock market, pays a little extra on the mortgage every month and avoids credit card debt, while the other dabbles in exotic investments, is on a first-name basis with a local bookie and maxes out credit cards at the holidays, we have a pretty good idea which household will be richer at age 65, no matter who earns more money over their careers.
It’s the same for companies. Earnings power matters, but not more than capital allocation. I thought about this for a while and sold SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) in the third quarter. This is a fine business with a history of making smart acquisitions. But recently the decision to use floating rate debt to finance acquisitions when interest rates were at historical lows has been a costly mistake. SS&C is growing modestly, but its earnings are stagnant because incremental cash flow must be dedicated to higher interest charges.
Selling SS&C and Markel, which were each about 4% of the portfolio, was not easy for me. Both businesses trade for reasonable prices and have good competitive positions. They have strong CEOs who have been in the job for many years. CEO Bill Stone founded SS&C and is a billionaire thanks to his own decisions. Tom Gayner at Markel is a well-regarded stock market investor and a much-admired leader.”
1. L3Harris Technologies, Inc. (NYSE:LHX)
Short % of Shares Outstanding: 0.66%
Number of Hedge Fund Holders: 40
Forward Price to Earnings Ratio as of August 28: 17.64
L3Harris Technologies, Inc. (NYSE:LHX), operates as an advanced technology company that sells mission systems, space and airborne systems, communication systems, and much more. It operates in the aerospace and defense industry selling its products to government agencies and commercial customers.
L3Harris Technologies, Inc. (NYSE:LHX) already has a strong competitive edge with market-leading capabilities in air, land, sea, and cyber security technologies. In 2023, the company acquired Aerojet Rocketdyne, a leader in aerospace, defense, and rocket propulsion, thereby adding space technologies to its portfolio.
Another strategic edge that sets it apart from the broader market and on track for long-term growth is its ability to maintain a strong order backlog while winning new government contracts simultaneously. During its most recent quarter, Q2 2024, L3Harris Technologies, Inc. (NYSE:LHX) landed new contracts worth $5 billion and increased its order backlog to more than $32 billion.
A strong order backlog can be a burden if management cannot drive revenue through it. L3Harris Technologies, Inc. (NYSE:LHX) has done well in keeping its top-line needle busy. During Q2 the company grew its revenue to $5.3 billion increasing 13% year-over-year on the back of Communication and Aerojet Rocketdyne segments.
The company’s profit margins are also growing, its operating income improved 19% during the year to reach $400 million, while margins grew 50 base points.
LHX is undervalued at current levels. It is trading at 18 times its forward earnings, a 10% discount to its sector. Moreover, its earnings are expected to grow 5.50% to reach $13.04. It was held by 40 hedge funds in Q2 2024, with total stakes worth $1.20 billion. Diamond Hill Capital is the top share holder of the company with a position worth $334.4.
Diamond Hill Mid Cap Strategy made the following comment about L3Harris Technologies, Inc. (NYSE:LHX) in its Q3 2023 investor letter:
“L3Harris Technologies, Inc. (NYSE:LHX) is a defense contractor focused primarily on communications, surveillance and electronic warfare. We anticipate the US’s defense budget will be better than expected over the next few years as the Defense Department focuses on preparing for peer-level threats — an area in which LHX’s capabilities fit nicely. We believe there is room for improvement in recent execution — particularly at recently acquired Aerojet Rocketdyne — and we think LHX’s new management team is well-qualified to improve results. We accordingly capitalized on a recent share-price decline to initiate a position at what we consider a compelling valuation.”
While we acknowledge the potential of L3Harris Technologies, Inc. (NYSE:LHX) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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