The technology industry has borne the brunt of the Fed’s aggressive interest rate hikes this year. Concerns over rising borrowing costs and slowing demand have led to tech stocks witnessing a massive sell-off. The tech-heavy Nasdaq Composite has fallen 28.4% year-to-date.
Thanks to the rapid advancement of technology solutions to match the changing consumer preference in this digital era, the industry is poised for a solid recovery in demand soon. The information technology market is expected to grow at a CAGR of 8.8% to reach $13,092.49 billion in 2026.
Amid the recession concerns, corporate spending on technology and innovation prospects remains uncertain. Although tech companies continue to announce layoffs and hiring freezes, investments in tech have been resilient.
According to Gartner, overall tech spending will rise about 5.1% next year after a gain of less than 1% this year. Gartner chief forecaster John-David Lovelock said, “CEOs and CFOs have no intention of cutting tech spending.” “Chief information officers are still wearing their halo from 2020, and CEOs are going back to the people who gave them the last set of solutions,” he added.
Given the industry’s long-term growth prospects, fundamentally strong tech stocks Microsoft Corporation (MSFT), Pure Storage, Inc. (PSTG), and F5, Inc. (FFIV) could be good additions to one’s portfolio at the current depressed price levels. On the other hand, Palantir Technologies Inc. (PLTR) could be best avoided now as its weak fundamentals may continue to keep the stock under pressure.
Stocks to Buy:
Microsoft Corporation (MSFT)
MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.
On October 12, 2022, Cisco (CSCO) and MSFT announced a new partnership to provide customers with more choices. President of Collaborative Apps and Platforms at Microsoft, Jeff Teper, said, “By welcoming Cisco as our newest partner building devices Certified for Microsoft Teams, we are excited to bring leading collaboration hardware and software to market together for our joint customers.”
For the first quarter of fiscal 2023 ended September 30, 2022, MSFT’s total revenues increased 10.6% year-over-year to $50.12 billion. The company’s operating income increased 6.3% from the prior-year period to $21.52 billion. In addition, its gross margin increased 9.5% year-over-year to $34.67 billion.
MSFT’s EPS for the quarter ending March 31, 2023, is expected to increase 6.1% year-over-year to $2.36. Its revenue for the quarter ending December 31, 2022, is expected to increase 2.8% year-over-year to $53.20 billion. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 5.7% over the past month to close the last trading session at $241.55.
MSFT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Within the Software – Business industry, it is ranked #9 out of 53 stocks. The company has an A grade for Quality and a B for Stability.
Click here to see the additional ratings of MSFT for Growth, Value, Momentum, and Sentiment.
Pure Storage, Inc. (PSTG)
PSTG provides data storage technologies, products, and services worldwide. The company’s Purity software is shared across its products and provides enterprise-class data services. Its products include FlashArray, FlashBlade, FlashStack, and FlashRecover, among others.
On May 11, 2022, PSTG and Snowflake (SNOW) announced a partnership to develop a solution that increases data accessibility for global customers with on-premises data.
PSTG’s Chief Technology Officer, Rob Lee, believes that the partnership reaffirms the company’s commitment to simplifying how organizations interact with data to extract the most value and drive meaningful business outcomes. It also strengthens its leadership in delivering advanced data storage technology and services across the industry.
For the fiscal second quarter ended August 2022, PSTG’s total revenue increased 30.2% from the year-ago period to $646.77 million. The company’s non-GAAP total gross profit increased 30.1% year-over-year to $455.59 million. Its non-GAAP net income increased 136.3% year-over-year to $101.60 million. Moreover, its non-GAAP net EPS came in at $0.32, representing a 128.6% increase from the prior-year quarter.
PSTG’s EPS and revenue for the quarter ended October 31, 2022, are expected to increase 15.8% and 19.4% year-over-year to $0.25 and $672.11 million, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 18.7% to close the last trading session at $31.07.
PSTG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It is ranked first in the A-rated Technology – Storage industry. It has an A grade for Growth and Quality.
Click here to see the other ratings of PSTG for Value, Momentum, Stability, and Sentiment.
F5, Inc. (FFIV)
FFIV provides multi-cloud application security and delivery solutions for the security, performance, and availability of network applications, servers, and storage systems. It also provides professional services, including consulting, training, installation, maintenance, and other technical support services.
On June 02, 2022, FFIV announced its collaboration with SoftBank Corp. to provide advanced Multi-access Edge Computing (MEC) services in Japan and international markets. The collaboration aims to explore the potential for additional cloud-native use cases in 5G/6G services and other areas, as well as further the companies’ shared vision.
For the fiscal fourth quarter ended September 30, 2022, FFIV’s total assets increased 5.6% from the prior-year quarter to $5.28 billion. Its total net revenues increased 2.6% year-over-year to $700.03 million. The company’s non-GAAP net income and non-GAAP EPS came in at $157.65 million and $2.62, respectively.
FFIV’s revenue for the quarter ending December 31, 2022, is expected to increase 1.7% year-over-year to $698.79 million. Its EPS for the quarter ending March 31, 2023, is expected to increase 18.6% year-over-year to $2.53. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 6.7% to close the last trading session at $149.91.
FFIV’s positive outlook is reflected in its POWR Ratings. The company has an overall rating of B, which equates to a Buy. In the Software – Business industry, it is ranked #4 out of 53 stocks. In addition, it has an A grade for Quality and a B for Value.
Click here to see the other ratings of FFIV for Growth, Momentum, Stability, and Sentiment.
Stock to Sell:
Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations. It offers software platforms Palantir Gotham, Palantir Foundry, and Apollo.
For the fiscal third quarter ended September 30, 2022, PLTR’s adjusted net income declined 80.4% year-over-year to $16.07 million. The company’s adjusted income from operations declined 30% year-over-year to $81.25 million. Its adjusted EBITDA declined 26.8% year-over-year to $87.19 million, while its non-GAAP EPS came in at $0.01, representing a 75% decline from the prior-year quarter.
Analysts expect PLTR’s EPS for fiscal 2022 to decline 65.4% year-over-year to $0.05. The company has a grim earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. The stock has fallen 55.5% year-to-date to close the last trading session at $8.10.
PLTR’s POWR Ratings reflect its grim outlook. The stock has an overall rating of D, translating to a Sell in our proprietary rating system. It is ranked #21 out of 26 stocks in the D-rated Software – SAAS industry. In addition, it has an F grade for Value and Sentiment and a D for Stability.
To see the other ratings of PLTR for Growth, Momentum, and Quality, click here.
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MSFT shares were trading at $242.13 per share on Tuesday afternoon, up $0.58 (+0.24%). Year-to-date, MSFT has declined -27.54%, versus a -15.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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