In this article, we discuss 5 tech stocks that analysts are cutting the estimates on. If you want to see more stocks in this selection, check out Analyst are Cutting Estimates on These 10 Tech Stocks.
5. DigitalOcean Holdings, Inc. (NYSE:DOCN)
Number of Hedge Fund Holders: 26
DigitalOcean Holdings, Inc. (NYSE:DOCN) is a New York-based cloud computing company that offers on-demand infrastructure and tools for developers, start-ups, and small and medium-scale businesses. On July 13, Goldman Sachs analyst Gabriela Borges double downgraded DigitalOcean Holdings, Inc. (NYSE:DOCN) to Sell from Buy with a price target of $40, down from $54. The analyst sees “idiosyncratic opportunities for alpha generation” in software over the next year and prefers companies that “sell into defensive/counter-cyclical end markets with strong free cash flow profiles”, while remaining cautious on markets which are pressurized by macro headwinds or COVID normalization. For DigitalOcean Holdings, Inc. (NYSE:DOCN), the analyst observed that latest data points reflect soft demand in its primary end markets over the next 12 months after a COVID-driven boost in the last two years. She is more cautious on the company’s short-term fundamentals.
Among the hedge funds tracked by Insider Monkey, 26 funds were long DigitalOcean Holdings, Inc. (NYSE:DOCN) at the end of March 2022, compared to 25 funds in the previous quarter. Jeffrey Hoffner’s Engle Capital is the leading position holder in the company, with 800,000 shares worth $46.2 million.
4. Wayfair Inc. (NYSE:W)
Number of Hedge Fund Holders: 27
Wayfair Inc. (NYSE:W) is a Massachusetts-based e-commerce company that offers millions of products in the furniture, decor, housewares, and home improvement categories. On July 18, Wedbush analyst Seth Basham lowered the price target on Wayfair Inc. (NYSE:W) to $50 from $68 and maintained a Neutral rating on the shares ahead of quarterly results. While industry retail sales growth rose 3% year-over-year in the second quarter, his checks pointed to more demand deterioration, especially for Wayfair Inc. (NYSE:W)’s primary mass market customer segment that is most affected by inflation.
According to Insider Monkey’s data, 27 hedge funds were bullish on Wayfair Inc. (NYSE:W) at the conclusion of the first quarter of 2022, compared to 28 funds in the last quarter. Brian Bares’ Bares Capital Management is the largest position holder in the company, with 4.5 million shares worth $504.25 million.
Here is what Vulcan Value Partners has to say about Wayfair Inc. (NYSE:W) in its Q1 2022 investor letter:
“Wayfair Inc. is a leading ecommerce retailer for home goods and furnishings. Wayfair is facing tough comparables as the economy emerges from the pandemic lockdowns. We expected this to be the case. Inflation is much higher than the market expected and the Fed’s response to that inflation has increased the risk of a recession in the near to medium term. With a potential recession on the horizon, our expectations of a multi-year expansion for Wayfair post-pandemic have been pushed out but not diminished. We believe the delay is temporary and we are pleased to see that Wayfair is taking steps to continue to deepen and widen its competitive moat, especially in its logistics capabilities. Long term, we are confident that ecommerce will continue to grow as a share of furniture retail sales. We believe that Wayfair’s continued investments in its infrastructure and supply chain will allow the company to remain the clear leader in this space.”
3. Seagate Technology Holdings plc (NASDAQ:STX)
Number of Hedge Fund Holders: 32
Seagate Technology Holdings plc (NASDAQ:STX) provides data storage technology and solutions in Singapore, the United States, the Netherlands, and internationally. The company’s products include hard disk drives, solid state drives, enterprise nearline systems, video and image HDDs, and network-attached storage drives. In Q1 2022, Seagate Technology Holdings plc (NASDAQ:STX) was part of 32 public hedge fund portfolios, up from 28 funds in the prior quarter.
On July 15, Deutsche Bank analyst Sidney Ho lowered the price target on Seagate Technology Holdings plc (NASDAQ:STX) to $82 from $95 and kept a Hold rating on the shares. The analyst cut estimates ahead of the company’s fiscal Q4 results to account for an uncertain IT spending environment. The analyst said that while cloud spending appears steady, he is seeing signs of enterprise IT spending beginning to decrease, with some companies citing inventory adjustments and slowed hiring.
Among the hedge funds tracked by Insider Monkey, Jacob Mitchell’s Antipodes Partners held 1.4 million shares of Seagate Technology Holdings plc (NASDAQ:STX) in Q1 2022, worth $124.6 million.
Here is what ClearBridge Investments has to say about Seagate Technology Holdings plc (NASDAQ:STX) in its Q1 2021 investor letter:
“Our high active share approach made the most difference in IT, where the portfolio’s holdings gained 4.5% compared to a loss for the benchmark. Results were led by our more cyclical positions in digital storage provider Seagate Technology.”
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation (NASDAQ:NVDA) is headquartered in Santa Clara, California, operating as a provider of graphics, cloud computing, semiconductors, and networking solutions in the United States, Taiwan, China, and internationally. Goldman Sachs analyst Toshiya Hari on July 15 lowered the price target on NVIDIA Corporation (NASDAQ:NVDA) to $166 from $192 and reiterated a Neutral rating on the shares. The analyst slashed estimates and targets across the semiconductor space to account for “continued deterioration in the macro/operating environment and recent industry data points”. The analyst cut 2023 earnings forecasts for semiconductor and semiconductor capital equipment names by 20%, and now his 2023 estimates are 22% and 27% behind Street consensus, respectively.
According to Insider Monkey’s database, 102 hedge funds were bullish on NVIDIA Corporation (NASDAQ:NVDA) at the end of Q1 2022, down from 110 funds in the earlier quarter. Fisher Asset Management, with a $2 billion stake, features as a prominent shareholder of the company.
Here is what RiverPark Long/Short Opportunity Fund has to say about NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2022 investor letter:
“Nvidia is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.
We expect future growth to remain robust as NVDA chips and software are critical to many of the core technologies being adopted globally, including cloud computing, virtual reality and advanced artificial intelligence. As with NFLX, we took advantage of the over 40% recent drop in the company’s shares over the last several months to initiate a small position.”
1. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 109
Netflix, Inc. (NASDAQ:NFLX), the American subscription streaming and original production company, has plummeted from its pandemic highs and the stock is down 67% year to date as of July 18. In Q1 2022, 109 hedge funds held long positions in Netflix, Inc. (NASDAQ:NFLX), down from 113 funds in the last quarter. Bill Ackman’s Pershing Square is a notable Netflix, Inc. (NASDAQ:NFLX) stakeholder, with 3.10 million shares worth $1.16 billion.
JPMorgan analyst Doug Anmuth said investor sentiment is cautious and expectations are “muted” heading into Netflix, Inc. (NASDAQ:NFLX)’s Q2 results on July 19. The company lost 2 million subscribers in Q2, and the analyst thinks investor expectations are a bit worse at between 2.5 million and 3 million. The analyst kept a Neutral rating on the stock with a $230 price target on July 14. UBS analyst John Hodulik lowered the price target on Netflix, Inc. (NASDAQ:NFLX) on July 15 to $198 from $355 and also reiterated a Neutral rating on the shares.
Here is what Tidefall Capital Management has to say about Netflix, Inc. (NASDAQ:NFLX) in its Q1 2022 investor letter:
“With Netflix (NASDAQ:NFLX) stock down by more than 50% since its high in November (and 10% below Reed Hastings’ $20m purchase in January) we re-entered the position in April believing we were being greedy when others were fearful. Unfortunately, its most recent results were well below expectations causing the shares to get cut in half (again).
(It’s interesting to note that this is not the first crisis for the company. In 2011, Netflix broke out its DVD service and streaming into 2 separate offerings, with the DVD by mail option called Quickster, the resulting price hike and confusion saw millions of subscribers leave and the stock fell 75%. The company would ultimately reverse the decision and continue its global ascent.)
In Q4 2021, Netflix forecasted for 2.5m – 4m net subscriber additions but ended up actually losing 200k (adjusted for exiting Russia they would have gained 500k subscribers). Q2 guidance was even worse as Netflix is now predicting that they will lose 2m net subscribers although the company still believes it will have positive net subscriber additions for the full year. Recent price hikes and an onslaught of new competitors are no doubt creating a more unfavorable competitive environment. However, we think it is important to step back and look at what Netflix has built and the advantages it now holds…” (Click here to see the full text)
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