In this article, we’re going to talk about the 7 best cheap technology stocks to buy according to hedge funds.
Another Surge in Tech Stocks
Recent analysis indicates a reset in tech stocks as the Fed has not adjusted rates quickly enough for investors. However, following this week’s rate cut, there is a renewed connection between tech stocks and market sentiment. A 50 basis point reduction can ease borrowing and spending, potentially leading to increased mergers and acquisitions activity, and heightened investments in technology, particularly AI.
Lower interest rates are expected to accelerate the shift towards AI computing by making capital more accessible. As rates decrease, expected returns on investments become more attractive, fostering greater confidence among companies to invest in AI. There is actually a relationship between how tech stocks are driving utility stocks now due to a global increase power demand thanks to electrification and AI. Michael Khouw, OpenInterest.PRO Chief Strategist, talked about this in detail earlier this week. Here’s an excerpt from the 10 Worst AI Stocks to Buy According to Reddit article that covered him:
“Khouw discussed the current state of utilities and acknowledged that while it may seem daunting to invest in a sector that has seen substantial gains, over 7.5% total return since the beginning of last year, it is still an opportune time to consider utilities as an investment. Historically, utilities have not been perceived as a growth sector, but Khouw emphasized that they are currently trading at about 19 times forward earnings, which is relatively high compared to their usual discount to the market…. He predicts that a new phase of growth in electricity demand is on the horizon, driven primarily by two factors: the rise of electric vehicles (EVs) and the increasing need for data centers fueled by artificial intelligence (AI)…. This landscape indicates a promising rise in AI stocks, driven by the increasing recognition of AI’s transformative potential across various sectors. As electricity demand surges, fueled by the rise of EVs and the expansion of data centers necessary for AI operations, investors are likely to see significant growth opportunities in AI stocks as well.”
In recent market updates, the NASDAQ Composite emerged as the best-performing major index, despite not reaching any record highs, unlike the Dow Jones and S&P 500. The NASDAQ’s resilience can largely be attributed to a rally in chip stocks, with notable contributions from big tech companies, which have been instrumental in helping recover some of its declines. The Fed’s recent interest rate cut has sparked renewed enthusiasm in the semiconductor sector, leading to significant gains for exchange-traded funds (ETFs) focused on this industry.
On September 20, CNBC’s Seema Mody reported that the VanEck Semiconductor ETF was surging post the Fed’s rate cut, driven by positive sentiment surrounding chip manufacturers. Notably, British semiconductor giant Arm has gotten attention following a meeting with management from a major financial institution, where analysts expressed confidence that the designer could achieve 20% revenue growth over the next few years. This anticipated growth is largely attributed to the increasing demand for CPUs driven by AI workloads in data centers.
Meanwhile, Nvidia saw an uptick of about 5%, marking a 10% rebound over the past couple of weeks. This resurgence coincided with CEO Jensen Huang’s active media presence, promoting the potential of accelerated computing at various conferences, including a recent event with Salesforce’s CEO Marc Benioff.
Additionally, Intel clarified that it would not sell its stake in Mobileye, which provided relief for the shares of that subsidiary, contributing to a notable 17% increase on that day. The semiconductor industry is currently awaiting earnings reports from Micron and Taiwan Semi, which could further influence market dynamics.
The combination of favorable economic conditions spurred by the Fed’s rate cut and optimistic outlooks from industry leaders has rekindled interest in semiconductor stocks. Investors are closely monitoring developments within this sector as companies position themselves to meet the growing demand of businesses and consumers for AI-powered products and services. As the outlook remains bullish for tech stocks, we’re here with a list of the 7 best cheap technology stocks to buy according to hedge funds.
Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 20 tech stocks with a forward P/E ratio under 20. We then selected the 7 cheapest stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Note: The data is sourced as of September 20, 2024.
Why are we interested in the stocks that hedge funds pile into? 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).
7 Best Cheap Technology Stocks To Buy According to Hedge Funds
7. Flex Ltd. (NASDAQ:FLEX)
Forward Price-to-Earnings Ratio: 13.5
Number of Hedge Fund Holders: 46
Flex Ltd. (NASDAQ:FLEX) is a multinational diversified manufacturing company that offers manufacturing solutions that incorporate advanced manufacturing capabilities, such as AI and ML, in its fabrication, assembly, and testing processes. It provides end-to-end manufacturing services, including design, engineering, manufacturing, and supply chain solutions for a range of industries.
Its unique power products and services offer value to customers and fuel growth, positioning it well for the AI-driven technology transition. It expects to outperform the market in automotive, despite concerns about EV adoption. The advanced compute solutions and power products provide a competitive edge. In digital health, the company sees strong medical device demand but a soft medical equipment market. A near-term supply-demand equilibrium is anticipated.
The company is focused on the AI sector, serving 80% of large and hyper-scale data center needs. It is one of the few AI industrial stocks with global reach and exposure to the automotive sector. Its power pods for data centers offer lower costs and shorter lead times, providing a competitive advantage. In FQ1 2025, there was significant progress in various large programs across its cloud, power, and automotive sectors.
In the fiscal first quarter of 2025, the company’s revenue fell 13.93% year-over-year, although it was up 2% sequentially. Datacenter and power revenues made up 25% of the total revenue. Reliability revenue was $2.9 billion more favorable than anticipated, led by stronger demand for power and medical devices. The sequential improvement was also driven by a reduction in net inventory by 6% sequentially and 21% year-over-year.
The company repurchased ~15 million shares totaling about $460 million of buyback this quarter. Flex Ltd. (NASDAQ:FLEX) is confident in meeting its full-year guidance and is well-prepared to capitalize on long-term opportunities in the automotive and healthcare sectors.
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.”
6. TD Synnex Corp. (NYSE:SNX)
Forward Price-to-Earnings Ratio: 9.07
Number of Hedge Fund Holders: 46
TD Synnex Corp. (NYSE:SNX) brings together solutions for every type of ecosystem partner with global technology distribution and solution aggregation capabilities, providing a comprehensive range of IT products and services, including hardware, software, networking solutions, and cloud services to a diverse customer base, including businesses, government agencies, and educational institutions.
As of the recent quarter, management believes that its markets have stabilized, and there’s optimism about revenue and gross billings growth in the second half of the fiscal year. The company believes that AI presents significant opportunities for growth.
Despite this outlook, there was a year-over-year decline of 0.81% in revenue in Q2 2024, although gross billings were up 3%. The earnings per share were $0.36. The growth came from all areas of business, including Endpoint Solutions, Advanced Solutions, and Strategic Technologies, which represent 25% of total business.
Strategic technologies now represent 25% of total gross billings, up from 22% in the year-ago period. 75% of gross billings were from hardware, 19% from software, and 6% from services. There were overall improvements in the IT spending market, but the main drivers of growth were the Endpoint Solutions and the Advanced Solutions, up 1% and 5% year-over-year respectively.
Higher growth is expected for the rest of 2024, driven by the PC refresh cycle, customer investments in data centers and cloud deployments, increased hyperscale capital spending, and expansion in software, security, and data analytics.
It launched the IBM Watsonx Gold 100 program to accelerate AI opportunities for partners in the second quarter, aiming to recruit 100 partners to help them achieve IBM Gold-tier status and expand AI opportunities through the IBM Watsonx platform. It was also named Microsoft’s Global Copilot Seats Champion.
It is well-positioned to capitalize on these opportunities through its strong market presence and focus on innovation.
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.”
5. Fidelity National Information Services Inc. (NYSE:FIS)
Forward Price-to-Earnings Ratio: 14.95
Number of Hedge Fund Holders: 59
Fidelity National Information Services Inc. (NYSE:FIS) engages in the business of technology, solutions, and services for merchants, banks, and capital markets businesses, operating through Merchant, Banking, and Capital Markets segments. It provides a range of software and technology solutions to financial institutions, including banks, credit unions, and insurance companies.
The company is on track for a record year of new core signings, signing almost as many cores in half year 2024 as in the full year 2023. The digital business had new sales increasing by over 30% in the first half of 2024. This highlights the success of cross-selling efforts, which itself grew 15%, to existing core customers and the ability to displace competitors.
Revenue for Q2 2024 ended up being $2.49 billion, reflecting a 33.56% decline year-over-year. However, in adjusted revenue terms, there was a growth of 4% in revenue from the year prior, with recurring revenue also growing 4% in the quarter. Non-recurring revenue rose 21%.
The capital markets alone drove a lot of this growth, with adjusted revenue growing 7%, led by recurring revenue growth of 7%, excluding acquisitions. Other non-recurring revenue grew 15%, primarily reflecting growth in license revenue, and professional services increased by 2% in line with expectations.
The company recently partnered with Curinos to offer FIS core banking clients access to Curinos’ data and analytics. It also partnered with Lendio to streamline SMB loan processing for financial institutions. In Capital Markets, it launched the Climate Risk Financial modeler, a SaaS-based solution designed to help clients assess and quantify climate risk.
While the company has shown consistent profitability, it has focused on shifting its business model towards higher-value software-based solutions to drive sustainable growth.
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.”
4. Global Payments Inc. (NYSE:GPN)
Forward Price-to-Earnings Ratio: 8.42
Number of Hedge Fund Holders: 66
Global Payments Inc. (NYSE:GPN) is a financial technology company that provides payment technology and services to merchants, issuers, and consumers, including payment processing, merchant acquiring, and issuing. Its services enable businesses to accept payments in various channels, such as in-store, online, and mobile.
The company closed Q2 2024 with $2.32 billion in revenue, up 5.51% from the year-ago period. The earnings per share were $2.93. Merchant solutions grew 8%. The acquisition of Takepayments contributed less than a point to these results, offsetting the negative impact of unfavorable foreign currency exchange rates. Issuer solutions were also up 4%.
Merchant Solutions grew due to differentiated capabilities in integrated software and point-of-sale. The integrated business saw double-digit growth, driven by strong bookings and new ISV partner signings (up 30% year-to-date). The PROFAC solution has increased active merchants by 40% and average merchant volumes by 60% since late 2023.
The company is seeing increased demand for B2B acceptance solutions, driven by PayFabric platform. There was over 50% growth in new ISV partnerships leveraging PayFabric. In vertical markets, there was double-digit growth in software bookings, with particular strength in education, real estate, and healthcare. A notable win is a new partnership with the Los Angeles Unified School District.
It’s strategically expanding its international presence, with significant progress in the European market, including key partnerships in the EV charging sector and acquisitions to strengthen distribution capabilities in the UK.
Global Payments Inc. (NYSE:GPN) is a well-established player in the payments technology industry. The company is poised for growth with its diversified revenue streams, technology investments, and global expansion efforts making it a strong investment in the payments technology space.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Global Payments Inc. (NYSE:GPN) in its Q2 2024 investor letter:
“In the Financials sector we tend to avoid banks that face credit deterioration or rising deposit costs, preferring either asset managers or specialized insurance companies. At the start of the year, we reinitiated a position in the payment processor Global Payments Inc. (NYSE:GPN). We viewed positively the installation of a new CEO who was its CFO and is well regarded by us. Global renewed its focus on merchant acquisition and card issuance, and its valuation became more attractive. However, we misjudged the lingering effects of a weaker macroeconomic environment on some of Global’s lower margin operations, which delayed the expected business pivot to merchant activities. With a lack of clarity about where the bottom might be, and its shares trading below where we projected a potential downside, we exited the position that was down -26% while held during the quarter.”
3. Western Digital Corp. (NASDAQ:WDC)
Forward Price-to-Earnings Ratio: 8.18
Number of Hedge Fund Holders: 80
Western Digital Corp. (NASDAQ:WDC) is a computer drive manufacturer and data storage company that designs, manufactures, and sells data technology products, including data storage devices, data center systems, and cloud storage services. These products are used in a variety of applications, including personal computers, data centers, and enterprise storage systems.
The iNAND MC EU511 embedded flash drive (EFD) is a standout product designed for next-generation 5G mobile devices. As 5G networks offer faster speeds and lower latency, the demand for high-capacity storage to manage IoT data increases. The company’s iNAND MC EU551 and EU311 models provide superior read and write speeds, making them ideal for data-heavy applications.
In the fourth quarter of fiscal 2024, it reported revenue of $3.76 billion, which shows a 40.87% year-over-year increase. The cloud segment revenue increased by 89% year-over-year, making up 50% of the company’s total revenue, driven by higher near-line shipments and pricing in HDD, along with increased bit shipments and pricing in enterprise SSDs. Client represented 32% of total revenue, up 16% year-over-year driven by higher flash ASPs. Consumer represented 18% of total revenue, up 5% driven by improved flash ASPs and bit shipments.
Analysts expect the company to grow its earnings by over 100% this year, as the AI Data Cycle is transforming the industry, increasing the need for storage.
Western Digital Corp. (NASDAQ:WDC) has made significant strides in innovation. The company has launched new high-capacity SSDs for gaming and enterprise applications. Its strong presence in the enterprise SSD market has driven revenue growth, especially due to increasing demand for cloud storage solutions.
Parnassus Mid Cap Fund stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
2. Dell Technologies Inc. (NYSE:DELL)
Forward Price-to-Earnings Ratio: 14.93
Number of Hedge Fund Holders: 88
Dell Technologies Inc. (NYSE:DELL) designs, develops, manufactures, markets, sells, and supports information technology infrastructure such as laptops, desktops, mobiles, workstations, storage devices, software, cloud solutions, and notebooks, serving a diverse customer base, including businesses, government agencies, and consumers.
In late August, Elon Musk announced that the company, along with Super Micro Computer, would manufacture servers for his AI startup xAI. The company is also expanding other partnerships. AI servers now account for 12.4% of total revenue, up from 2.2% three quarters ago. Earlier this year, it expanded its AI factory with NVIDIA to include the new PowerEdge XE9680L server, as well as storage, edge, and workstation solutions.
In the second quarter of fiscal 2025, Dell Technologies Inc. (NYSE:DELL) made $25.03 billion in revenue, up 9.12% from a year-ago period, including the headwinds from the exit of VMware resale business. Combined CSG and ISG business grew 12%.
ISG revenue alone was up 38% year-over-year. Server and networking revenue rose 80%. Storage revenue was down 5%, while CSG revenue declined 4%. Commercial revenue was flat and consumer revenue was also down 22%.
Orders demand was $3.2 billion, primarily driven by Tier-2 cloud service providers. The company shipped $3.1 billion of AI servers this recent quarter. Management also took a $328 million charge for workforce reduction.
A year ago in FQ2, the firm had essentially no AI revenue. However, in the most recently reported FQ2, AI accounted for 40% of the company’s server and networking revenues. AI is moving incredibly fast, as in the past 12 months, the company sold nearly $9.5 billion of AI infrastructure and shipped $6.5 billion of AI infrastructure.
AI will play a key role in increasing productivity for the rest of fiscal 2025. Dell Technologies Inc.’s (NYSE:DELL) strong financial performance, including increased revenue and profitability, demonstrates its ability to capitalize on emerging trends.
Carillon Scout Mid Cap Fund stated the following regarding Dell Technologies Inc. (NYSE:DELL) in its Q2 2024 investor letter:
“Dell Technologies Inc. (NYSE:DELL) was a top contributor despite reporting disappointing first-quarter earnings results, because investors looked through the near-term disappointment and expected strong growth from AI-related servers and personal computers. We expect Dell to participate in the growth of artificial intelligence hardware, especially as enterprises invest more aggressively. We like the company’s depth and breadth of products and services, as well as its focus on keeping costs low.”
1. Micron Technology Inc. (NASDAQ:MU)
Forward Price-to-Earnings Ratio: 10.56
Number of Hedge Fund Holders: 120
Micron Technology Inc. (NASDAQ:MU) is a producer of computer memory and computer data storage including dynamic random-access memory, flash memory, and USB flash drives, for a wide range of electronic devices, including smartphones, computers, servers, and data centers. Many hyperscalers rely on it for memory products, including Apple.
In the FQ3 2024, the company’s revenue increased by a record 81.53% year-over-year, primarily driven by robust AI demand. The demand for its DRAM and NAND flash memory is rising, largely due to growth in data centers, AI, and automotive technology. DRAM revenue represented 69% of total revenue, up 13% sequentially. Data center revenue alone rose over 50% sequentially, while NAND flash products revenue increased by 32%.
Compute and Networking Business Unit revenue improved 18% sequentially. Embedded Business Unit revenue was up 16% driven by record revenue in automotive, and the revenue for the Storage Business Unit increased by 50% quarter-over-quarter. All these improvements were offset just very slightly by the 1% sequential decline in the Mobile Business Unit.
Despite the strong performance in FQ3 2024, it’s facing challenges due to an inventory glut from last year. The company is heavily investing in high bandwidth memory production, which is expected to generate billions in sales by fiscal 2025 compared to just hundreds of millions in 2024.
The company’s current challenges are due to its substantial investments in expanding manufacturing capacity. In FQ3, the company invested $2.06 billion. However, these investments are expected to drive future growth, especially with support from the US government. Strong AI demand positions it to benefit from rebounding memory prices and favorable inventory balances.
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
While we acknowledge the growth potential of Micron Technology Inc. (NASDAQ:MU), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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