In this article, we will discuss the 8 Tech Stocks with Biggest Upside Potential According to Analysts.
In the opening months of 2024, the information technology and communication services sectors aided the rest of the broader equities in the US. As per BNP Paribas Asset Management, while the performance of certain segments might seem overextended, such dynamic moves resulted in businesses delivering healthy fundamental results and guiding for continued improvement. Cutting-edge technologies are being used to bring about change throughout verticals such as healthcare, finance, manufacturing, and retail. The resulting benefits will improve productivity and efficiency, customer experiences, and profitability.
As of now, generative artificial intelligence (AI) continues to strongly impact several enablers and beneficiaries of this technology, with their stock prices similarly benefiting. Resultantly, the valuation multiples stretched, implying an acceleration in future earnings growth. The firm also believes that some of these companies are expected to meet or exceed the growth implied by their multiples, with others disappointing and experiencing a price correction.
The firm also believes that AI workloads remain the area of rapid growth which continues to contribute to the broader improvement in revenues from the cloud businesses. Some US tech giants, or hyperscalers, can be the obvious winners from this reacceleration. However, there remain numerous corollary beneficiaries possessing significant upside potential. Notably, networking software and equipment can be tagged as one area in which growth rebounds quicker than expected.
Trends Likely to Support Companies
Edge Computing and Platform Engineering are likely to be critical technologies to support companies in improving their profitability numbers. Edge computing tends to process data near the source or point of its generation to save bandwidth and decrease the response latency. This is important for applications requiring to process data proactively in real-time, like autonomous vehicles, industrial automation, and smart cities.
According to MarketsandMarkets, the global edge computing market should touch USD 15.7 billion by 2025, demonstrating a CAGR of ~34.1%. This growth is expected to be fueled by increased adoption of cloud-like agility, innovation, and flexibility in edge computing infrastructure. While the adoption of edge computing continues to be led by manufacturing, healthcare, and telecommunication industries, market experts believe that this demand will increase as a result of faster and more reliable data processing.
The next trend that is likely to revolutionize the technology space is Platform Engineering. This involves scalable and integrated platforms of technology through solutions catering to a vast set of applications. These solutions are the ones providing the base for developing software affordably. Gartner predicts that, by 2026, ~80% of large software engineering organizations will establish platform engineering teams as internal providers of reusable services, components, and tools for application delivery. This implies a rise from 45% in 2022. Therefore, Platform Engineering will help organizations scale their business operations and the overall support of other applications.
Software and IT Services Should Drive Growth
Gartner expects that global IT spending should grow 6.8% in 2024, reaching USD 5 trillion. The software and IT services segments will lead this growth and account for about half of the expected total spending. Cybersecurity should be one of the critical drivers of growth in the software segment. This comes after ~80% of technology executives told Gartner that they continue to plan to increase spending in this area as a result of concerns stemming from AI adoption which might increase vulnerabilities for IT security.
A close-up of a hand reaching out to touch a virtual animation, demonstrating the power of the company’s IoT technology.
Our methodology
To list the 8 Tech Stocks with Biggest Upside Potential According to Analysts, we conducted extensive research and sifted through several online rankings. After extracting the list of 20-25 stocks, we selected the following 8 tech stocks with biggest upside potential. Finally, we ranked the stocks according to their potential upside, as of October 4. We also mentioned the hedge fund sentiments around each stock, as of Q2 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).
8 Tech Stocks with Biggest Upside Potential According to Analysts
8) Concentrix Corporation (NASDAQ:CNXC)
Expected Upside Potential: 44.54%
Number of Hedge Fund Holders: 25
Concentrix Corporation (NASDAQ:CNXC) is engaged in providing technology-infused customer experience (CX) solutions worldwide.
Market analysts believe that strategic shifts toward high-margin and transformative business should continue to aid Concentrix Corporation (NASDAQ:CNXC)’s long-term growth prospects. The company expects the launch of iX Hello, which is an LLM-agnostic generative AI productivity tool, is expected to enhance operational efficiency. Concentrix Corporation (NASDAQ:CNXC) plans to reduce net leverage to ~2.8 times adjusted EBITDA by year-end.
In a recent earnings call, the company highlighted that clients have been asking providers to assume upfront investments for transformation, which might result in enhanced margins over time. Concentrix Corporation (NASDAQ:CNXC)’s shift towards automation continues to occur faster than expected, with clients looking for quicker implementations.
Given the clear focus on technology, AI integration, and transformational business opportunities, Concentrix Corporation (NASDAQ:CNXC) has been positioning itself to tap higher-margin projects and deliver improved value to both its clients and shareholders. The company believes that its strategic direction and the potential for automation and consolidation should fuel future growth.
For FY 2024, Concentrix Corporation (NASDAQ:CNXC) expects reported revenue of between $9.591 billion – $9.641 billion and operating income of $611 million – $617 million. Robert W. Baird assumed coverage on shares of the company on 3rd October. The company gave an “Outperform” rating and a $70.00 target price.
Investment management company First Pacific Advisors recently released its first quarter 2024 investor letter. Here is what the fund said:
“Concentrix Corporation (NASDAQ:CNXC) is one of two top customer experience (CX) vendors globally. The company started managing call centers but has since evolved into a high-tech business process outsourcer (BPO) that also designs and manages customer-facing websites and apps, integrates the data, and optimizes a client’s customer interactions. The company was spun out from TD Synnex, another of the Fund’s core holdings, and we have always been impressed with the company’s innovation and growth. CX is a relatively new business model, and Concentrix has been rolling up smaller competitors. In March, 2023 they bought WebHelp, a leading European CX player, for $4.8B in cash and stock. We believe the WebHelp acquisition will help consolidate an industry where Concentrix and Teleperformance are the largest players.
On Jan. 24, 2024 Concentrix reported Fiscal 2023 earnings that included weak 1% – 3% organic growth guidance for 2024. The market’s current concern about the potential of artificial intelligence to disrupt Concentrix’ core call center business has resulted in the underperformance in the shares across the industry. Concentrix has three turns of debt from the Webhelp deal which will be a problem if earnings deteriorate quickly. But Concentrix now trades at less than five times adjusted EPS. We think, but don’t know, that Concentrix’ domain knowledge and integration into customers’ workflows make for meaningful switching costs. We have held on to our Concentrix shares but have not added to the position.”
7) Snowflake Inc. (NYSE:SNOW)
Expected Upside Potential: 48.19%
Number of Hedge Fund Holders: 69
Snowflake Inc. (NYSE:SNOW) offers a cloud-based data platform for various organizations in the US and internationally.
Wall Street analysts believe that the growth prospects of Snowflake Inc. (NYSE:SNOW) stem from favorable demand conditions for the DBMS software. Its base of customers’ workloads will mature, and together with significant switching costs, this should result in less volatile consumption revenue trends. Also, Snowflake Inc. (NYSE:SNOW) is expected to be helped by the sectoral tailwinds. The demand stems from the workloads pivoting to cloud environments. Therefore, the company should accumulate a larger share of the overall database management system market.
The focus on driving consumption via sales force compensation is expected to have a positive impact in 2026. Snowflake Inc. (NYSE:SNOW)’s competitive edge in analytics, data engineering, and Al should fuel topline growth moving forward. Furthermore, analysts expect that the company is well-placed to aid enterprises leveraging data to build newer-generation Al applications.
In a recent earnings call, the company highlighted that new capabilities Cortex AI and Iceberg are being adopted by well-established clients. Snowflake Inc. (NYSE:SNOW) is expecting a stable net revenue retention and is planning to accelerate sales force hiring.
Analysts at DA Davidson restated a “Buy” rating on the shares of Snowflake Inc. (NYSE:SNOW), issuing a $175.00 target price on 3rd October. Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Snowflake Inc. (NYSE:SNOW) is a leading cloud data platform that is predominantly used for data analytics. The stock declined 16.4% as investors evaluated the impact of a recently announced CEO transition, an investment cycle driven by spend on AI, a cybersecurity incident, and a rapidly changing competitive environment. With GenAI capturing a larger portion of the public discourse, Snowflake’s positioning in the future data stack is under scrutiny by both investors and customers. We believe Sridhar Ramaswamy, the newly appointed CEO, can help the business more efficiently transition toward an AI-first world. While Databricks and other key competitors are presenting strong results, we believe Snowflake’s brand, existing customer base, and accelerating product innovation should allow it to continue to capture share in a relatively large and strategic market. Management continues to describe strong demand trends for its core data analytics, which is also demonstrated by the relatively healthy expansion rates among existing customers while new go-to-market initiatives can help grow the customer base further. Longer term, we remain excited about the Snowflake’s strategic opportunity as the data platform for its customers.”
