We recently compiled a list of the 12 Most Undervalued Tech Stocks to Invest in Now. In this article, we are going to take a look at where NICE Ltd. (NASDAQ:NICE) stands against the other undervalued tech stocks.
Will Tech And AI Be The Driving Force in 2025?
Katrina Dudley, global equity portfolio manager at Franklin Templeton Investments joined CNBC on December 31, 2024, to discuss which sectors are expected to continue with their gains in 2025. She mentioned that it is important to understand what sectors performed well last year to predict the future performance of the market. Dudley highlighted that technology was one of the sectors that worked well last year followed by some utility sector companies. The utility sector companies that performed well were mostly those power-producing companies that experienced increased demand due to AI. She emphasized that one of the themes she believes is secular and will continue to perform is the AI and the technology sector.
While talking about the high valuations of technology and communication services sector, Dudley acknowledged that these sectors are trading at lofty valuations above the S&P 500 index. However, she emphasized that valuations have never been a reason to sell something. It is important to unpack what high valuations are telling about the industry. She thinks that valuations at the moment reflect the number of things that the market is getting right. For instance, the earnings growth for these sectors has been positive, which is very different from the infinite bubble scenario. Moreover, the second contributing factor to higher valuations as explained by Dubley is the network effect, which is driving returns to the biggest players in the industry. Concerning these two points, she thinks there is a good rationale behind the tech stocks’ high valuation.
Dudley also highlighted that one of the ways the valuation multiple can come down is when these companies grow their earnings ahead of market consensus. This she believes is one of the risks that the market should be cognizant about. As earnings growth for any company is difficult to predict and when the market is expecting the company to deliver earnings growth there is always a risk of mis-execution. Therefore these high valuation companies need to deliver on earnings growth. Dudley mentioned that she is not worried about the valuations however it is something that she would be watching closely.
Our Methodology
To compile the list of the 12 most undervalued tech stocks to invest in now, we used the Finviz stock screener, Seeking Alpha, and Yahoo Finance. Firstly, we aggregated a list of tech stocks trading under the Forward P/E of 15 with positive earnings growth expected this year. Next, we cross-checked the Forward P/E ratio of each company from seeking alpha and expected earnings growth from Yahoo Finance. Lastly, we ranked the stocks based on the number of hedge fund holders of each stock, sourced from the Insider Monkey Q3 2024 hedge funds database. Please note that the data for this article was collected on January 17, 2025.
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).
A data scientist sitting in front of a monitor to review the performance of AI-driven digital business solutions.
NICE Ltd. (NASDAQ:NICE)
Forward P/E Ratio: 14.86
Earnings Growth: 24.91%
Number of Hedge Fund Holders: 24
NICE Ltd. (NASDAQ:NICE) is an international software company that specializes in helping businesses improve their customer interactions and manage compliance against financial crimes. It differentiates through its CXone platform, a customer experiences (CX) tool that integrates artificial intelligence (AI) to improve customer interactions. The company has been focused on adapting its services to leverage AI and cloud technologies.
Broyhill Asset Management in their third quarter investor letter for 2024 highlighted that NICE Ltd.’s (NASDAQ:NICE) cloud-based software allows it to implement greater functionality, which its on-premises competitors fail to provide. Moreover, companies like NICE are leveraging AI into their offerings, thereby providing customers with wider access to new developments making them stand out in the market.
During the fiscal third quarter of 2024, the company proved Broyhill Asset Management’s sentiment to be true. It grew its revenue by 15% year-over-year to reach $690 million. The total revenue growth was greatly aided by a 24% increase in Cloud revenue which reached $500.1 million during the quarter. It is one of the most undervalued tech stocks to invest in now.
Broyhill Asset Management stated the following regarding NICE Ltd. (NASDAQ:NICE) in its Q3 2024 investor letter:
“NICE Ltd. (NASDAQ:NICE) develops software to run customer contact centers. The company’s cloud-based software enables the implementation of greater functionality versus its on-premise competitors. Many of these on-premise competitors, which do not offer cloud-based products, have stopped rolling out new features. This has prompted their customers to switch to companies like Nice where they have wider access to new developments. Artificial intelligence is a large part of this shift and of our differentiated view. The market views AI as a threat to Nice’s core operations; we view it as an enabler of additional revenue streams with improved economics.”
Overall NICE ranks 11th on our list of the most undervalued tech stock to invest in now. While we acknowledge the potential of NICE 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 time frame. If you are looking for an 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.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.