We recently compiled a list of the 8 Unstoppable Tech Stocks to Buy Now. In this article, we are going to take a look at where Neonode Inc. (NASDAQ:NEON) stands among the unstoppable tech stocks to buy now.
What’s Happening with Big Tech Stocks?
The technology sector has outperformed the market for the past several years. The industry has accounted for more than 30% of the overall market holdings especially led by Big Tech. One of the key factors that skyrocketed the stock prices for these mega-cap tech stocks is the hype around artificial intelligence.
However, we also witnessed the technology sector going into what analysts call an “AI Bubble”, where companies’ revenues are not justifying the large capital expenditure on artificial intelligence. We recently covered the 13 Best American Tech Stocks To Buy According to Short Sellers. We discussed how Big Tech has led the American stock market for several years. Here’s an extract from the article:
This dynamic progress was reflected in the US stock market when it rose more than 3% in the second quarter of 2024. In terms of the trade in artificial intelligence, technology companies remained at the top, and this trend did not appear to be slowing down throughout the quarter. The largest companies have outperformed the market this year, which has been a remarkable trend. The 500 largest companies’ large-cap market saw gains of 4.4% in Q2 YoY, increasing its 2024 return to above 15%. In contrast, the small-cap market saw a 3.3% drop, translating into a 1.6% 2024 return.
Even though technology companies outperformed in Q2 FY2024, Main Street Research’s James Demmert cautions investors not to treat all of them the same. Instead, they should prioritize those tech firms that can deliver consistent earnings, especially in an uncertain economy.
On the other hand, if we look at the recent figures the story tends to present a different picture. Almost a week ago, on August 30, CNBC reported that most of the Magnificent Seven were lower for the week, with investors’ favorite chipmaker taking the biggest hit after it fell short of largely inflated earnings expectations.
Dan Niles, Niles Investment Management founder and portfolio manager, joined CNBC on the same day suggesting investors to look outside of just the Magnificent 7 for the rest of the year. He mentioned that the companies have now declined on average 4% the day after reporting results, against rising 4% after releasing results in the first quarter.
He explained that this downward trend is a fundamental shift, pointing out that if we look at the financials of these stocks and forget the hype for a moment. We will see all these companies reporting their forward revenue estimates going down. Dan Niles acknowledged that it’s popular to talk about AI as these companies are leading the market but at some point, investors want some digestion of the capital expenditure, which has been going up consistently.
The portfolio manager also presented his bull case thesis for the 493 stocks in the S&P 500 stocks. He mentioned that if you look at the market on July 16, this was the time when the S&P 500 hit its all-time high. Since then it has been down around 1%, whereas the Magnificent Seven have been down around 8%.
He mentioned that if you are looking to invest, look for areas that benefit from the rate cuts. Niles mentioned areas like consumer staples, utility, telecom services, and other sectors of the market because he believes that the other 493 stocks will drive the market to new records. Lastly, Niles clarified that he still likes tech stocks but mentioned that it’s the other stocks that are going to benefit from the rate cuts during the rest of the year.
Our Methodology
To curate the list of 8 unstoppable tech stocks to buy now, we used the Finviz stock screener. We screened for technology companies that have gained at least 50% on a year-t0-date basis, as of September 10. We then selected the highest gainers that were the most popular among elite hedge funds. The stocks are ranked in ascending order of their year-to-date performance.
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).
Neonode Inc. (NASDAQ:NEON)
Year-to-date Share Price Gain as of September 10: 206.93%
Number of Hedge Fund Holders: 1
Neonode Inc. (NASDAQ:NEON) is a technology company that develops electronic components for various industries. The company develops advanced optical sensing technologies that enhance human interaction with machines. Its technology offerings include touchless interactions, infrared touch technology, object detection, and machine perception.
Its technology serves the automotive industry, medical industry, industrial automation, and military and avionics industries. Recently, Neonode Inc. (NASDAQ:NEON) has positioned itself to capitalize on its licensing business model. On May 22, the company announced its first licensing agreement for its Touch Sensor Module Technology to YesAR, a Chinese firm specializing in holographic display technology. The shift in business model began in late 2023 and this recent agreement marks a significant step towards the transition.
The technologies manufactured and licensed by Neonode Inc. (NASDAQ:NEON) are in high demand due to the recent trend of autonomous vehicles. Its ongoing Driver Monitoring Systems project with the Original Equipment Manufacturer (“OEM”) of commercial vehicles was one of the key drivers of revenue for the latest quarter. The revenue for the quarter ended June 2024 was up 18.7% year-over-year and reached $1.4 million.
Management has been working towards reducing the operating expenses and was able to reduce the expense by 1.6% year-over-year to $2.7 million. Neonode Inc.’s (NASDAQ:NEON) decision to focus solely on the licensing business resulted in an increase in product sale revenue as a result of last-time buy orders from its existing customers to keep their supply lines intact.
NEON has soared around 206% on a year-to-date basis and was held by one hedge fund in Q2 2024, being Citadel Investment Group, with a position worth $74,019.
Overall NEON ranks 5th on our list of the unstoppable tech stocks to buy. While we acknowledge the potential of NEON as an investment, 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.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. None. This article was originally published on Insider Monkey.
