We recently compiled a list titled 8 Tech Stocks with Biggest Upside Potential According to Analysts. In this article, we will look at where NICE Ltd. (NASDAQ:NICE) ranks among tech stocks with the 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.
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).
NICE Ltd. (NASDAQ:NICE)
Expected Upside Potential: 54.94%
Number of Hedge Fund Holders: 29
NICE Ltd. (NASDAQ:NICE) offers cloud platforms for AI-driven digital business solutions worldwide.
NICE Ltd. (NASDAQ:NICE) saw expansion in its market share as a result of increased demand for its CXone platform and AI solutions. The company remains on track to complete its $300 million share buyback program by Q3 2024 end and expects continued revenue growth for the remainder of the year. It expects revenue distribution to be consistent with prior years, with possible acceleration in Q4 2024 because of seasonality.
While NICE Ltd. (NASDAQ:NICE) expects strong cash flow generation and a significant rise in FCF for the year, the company also sees continued growth in cloud margins and profitability. Significant investments and increased spending should help increase the demand for AI. Since Cloud migration remains more advanced in SMBs, NICE Ltd. (NASDAQ:NICE) anticipates that larger enterprises will also follow.
Long-term investments focused on architecture and solutions should continue to contribute to the market share. NICE Ltd. (NASDAQ:NICE)’s focus on AI and strategic investments seems to be paying off, with robust bookings and customer adoption. For Q3 2024, the company expects non-GAAP total revenues to be between $676 million – $686 million, exhibiting 13% growth YoY at the midpoint. Also, non-GAAP fully diluted EPS should be between $2.62 – $2.72.
JMP Securities reissued a “Market outperform” rating, giving a $300.00 target price on the shares of NICE Ltd. (NASDAQ:NICE) on 16th August.
Parnassus Investments, an investment management company, released the second quarter 2024 investor letter. Here is what the fund said:
“NICE Ltd. (NASDAQ:NICE) reported first-quarter earnings that exceeded consensus estimates. However, the stock fell on news the company’s CEO plans to leave at the end of the year and on concerns that its contact center software would be replaced by generative AI. We believe the concerns are overblown and anticipate instead that the firm will integrate AI features successfully.”
Overall NICE ranks 4th on our list of the tech stocks with the biggest upside potential according to analysts. While we acknowledge the potential of NICE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than NICE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published on Insider Monkey.