Companies in the tech space have been among the biggest beneficiaries of the COVID-19 pandemic and their stocks have been red hot over the past year. But as government rescue packages and the central bank’s accommodative monetary policy fuel a robust economic rebound, concerns over rising inflation and Treasury yields are motivating investors to sell overvalued tech stocks and buy non-tech stocks that have turnaround potential.

Acknowledging the better-than-expected vaccination drive, investors are now anticipating slowing growth in demand for tech products and services this year because the United States is returning to more normalized conditions for commerce. This has caused tech stocks to lag the broader market so far this year, which is evidenced by the Vanguard Information Technology Index Fund ETF’s (VGT) 3.5% gains compared to the S&P 500’s 10.5% returns over this period.

However, some major multinational companies have already adopted a remote work culture permanently. Furthermore, investors must acknowledge that the current wave of artificial intelligence (AI), 5G network, cloud computing and virtual reality advances are expected to continue driving the tech industry’s  growth. This year could see more spending on cloud and edge computing infrastructure, and tech stocks should continue their accelerated growth even in the post-pandemic world. Given this backdrop, we think it is wise to scoop up Oracle Corporation (ORCL), Intel Corporation (INTC), SAP SE (SAP) and Telefon AB L.M. Ericsson (ERIC). They could offer handsome upside from their current price levels based on solid fundamentals and strong earnings momentum.

Oracle Corporation (ORCL)

ORCL develops, hosts, and supports database and middleware software, application software, cloud infrastructure, hardware systems, and related services worldwide. It operates via four segments—Cloud services and license support, Cloud license and on-premises license, Hardware, and Services. The company has 7,300 Fusion enterprise resource planning (ERP) customers currently, and more than 23,000 NetSuite ERP customers in the Oracle Cloud.

Because  the emergence of more infectious COVID-19 virus variants is causing a threat to the global recovery,  Oxford University and ORCL have created a Global Pathogen Analysis System (GPAS) with the power of Oracle Cloud Infrastructure. On May 14, DISH Wireless, the connectivity major that is building the nation’s first cloud-native, OpenRAN-based 5G network,  selected ORCL to enable a Service-Based Architecture (SBA) for its 5G core. Also, ORCL is rapidly escalating its cloud regions and unveiled the Vinhedo Cloud region in Brazil last week, thereby expanding to a dual cloud region in Brazil.

In its fiscal third quarter (ended February 28, 2021), ORCL’s revenues were up 3% year-over-year to $10.1 billion. Its cloud services and license support contributed 72% to the top-line as segment revenues increased 5% to $7.25 billion. Its adjusted operating margin came in at 47%. In fact, ORCL’s Gen2 Cloud Infrastructure business revenue grew at a rate more than 100% on the back of robust customer addition. The company’s highly profitable multibillion-dollar Fusion and NetSuite Cloud ERP applications businesses grew revenue 30% and 24%, respectively, during the quarter. While its non-GAAP EPS came in at $1.16, rising 20% compared to its year-ago quarter.

The permanent adoption of remote working environments has reinforced demand for cloud-based services, and organizations around the world  are seeking increased scalability, business continuity and cost efficiency. Thus, analysts expect the company’s revenue to increase 5.8% in the current quarter. A $1.13 consensus EPS estimate for the current  quarter represents a 9.2% improvement year-over-year. Notably, ORCL has surpassed  consensus EPS estimates in each of the trailing four quarters. Analysts further expect ORCL’s current year revenue and EPS to grow 3.1% and 15.8%, respectively.

ORCL has registered  a mere0.1%  gain over the past month. However, it is also worth noting that the stock has returned more than 50% over the past year. ORCL opened 13 additional Cloud datacenter regions in 2020 and currently operates 30 regions globally–the fastest expansion by any major cloud provider. ORCL has increased its already aggressive expansion plan, and now expects to have 38 Cloud regions  by the end of 2021.

ORCL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

ORCL also has a B grade for Value, Stability and Quality. Of #125 stocks in Software – Application industry, ORCL is ranked #10.

In total, we rate ORCL on eight different levels. In addition to the POWR Ratings grades we’ve just highlighted, one  can see the ORCL’s ratings for Growth, Momentum and Sentiment here.

Click here to check out our Software Industry Report for 2021

Intel Corporation (INTC)

INTC designs integrated digital technology platforms for smart and connected devices worldwide. By embedding intelligence in the cloud, network, and edge, INTC unleashes the potential of data to transform business. It operates through its PC Client Group, Data Center Group, Internet of Things Group, Mobile and Communications Group, Software and Services, and All Other segments.

On March 23,  INTC CEO Pat Gelsinger unveiled his vision for “IDM 2.0,” a major evolution of Intel’s integrated device manufacturing (IDM) model. Gelsinger announced significant manufacturing expansion plans, beginning with  an estimated $20 billion investment to build two new factories in Arizona, and the company’s plans to become a major provider of foundry capacity in the U.S. and Europe to serve customers globally. INTC reported $77.9 billion in revenue for its fiscal first quarter, ended March 27, 2021. This was relatively flat year-over-year, driven by strong PC demand. In fact, PC unit volumes were up 38% year-over-year, and notebook volumes set a record. The company also saw an initial recovery of Enterprise and Government sales in the Data Center Group (DCG). The company also shipped new CPU products during the quarter and announced key customer design wins. However, its  EPS came in at $0.82, falling 37% versus the prior year value.

INTC struggled for most of 2020 due primarily to its seven–nanometer chip manufacturing hiccup. However, the company has made efforts to revamp its business this year by improving process technology and expanding its manufacturing operations. In fact, INTC highlighted how it is driving technology leadership with the introduction of more than 50 new client processors, under four processor families, resulting in it bringing more than 500 new designs for laptops and desktops  to market in 2021.

INTC is down 13% over the past month due to the current  global semiconductor shortage. However, the stock has returned 11.7% so far this year and gained further momentum this year because  analysts are confident in INTC’s innovative chip business and its diverse bets, including its 5G collaboration with Google Cloud and Mobileye’s self-driving system.

INTC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. INTC has an A grade for both Value and Quality. In the 98-stock, B-rated Semiconductor & Wireless Chip industry, it is ranked #13.

Beyond what I stated above, we also have given INTC grades for Growth, Momentum, Stability and Sentiment. Get all INTC’s ratings here.

Click here to checkout our Semiconductor Industry Report for 2021

SAP SE (SAP)

SAP develops and provides analytics and application software for enterprises worldwide. It also provides software-related services. Roughly 77% of the world’s transaction revenue touches an SAP system. SAP’s forte is enterprise resource planning software or ERP. Companies of varying sizes in all sorts of niches use SAP’s software solutions to obtain insights and make prudent, well-informed decisions and run as an intelligent enterprise.

SAP  recently extended its decades-long partnership with global professional services company, Accenture (ACN) to help companies accelerate sustainability transformation and drive new sources of value.. Furthermore, SAP closed two acquisitions during the first quarter. The acquisition of Signavio has significantly deepened SAP’s business process intelligence capabilities, while its  acquisition of Finland-based non-coded development platform specialist AppGyver is accelerating the migration of its r clients’ enterprise applications to the cloud.

SAP’s revenue for the first quarter, ended March 31, 2021, declined 2% year-over-year to $7.65 billion. Its current cloud backlog, which is a key indicator of go-to market success in cloud business, rose 19%  during the quarter—the fastest rate in five years—while its adjusted cloud revenue gained 13%. In fact, the cloud and software business segment contributed 87.3% to the top-line. Its  EPS for the quarter came in at $1.69, surging 63% versus  the year-ago value, driven by a  strong contribution from Sapphire Ventures.

Wall Street analysts expect SAP’s revenue for the current  quarter, ending June 30, to be $8.16 billion, rising 3.6% year-over-year.  Its EPS is also expected to strengthen 8.8% this quarter. Notably, it surpassed the consensus EPS estimates in each of the trailing four quarters. SAP’s management has also recently raised its 2021 outlook following a strong first-quarter, driven by strength in its new cloud business. Analysts further expect SAP’s revenues for the current year to grow 3.3% year-over-year.

SAP has been exploiting a blend of organic and inorganic strategies to broaden its footprint in the cloud enterprise business. Even though shares of SAP are down 1.7% over the past month, the stock has returned over 15% over  the past six months. SAP’s expanding clientele is noteworthy because hundreds of companies worldwide  chose SAP Ariba and SAP Fieldglass solutions in the first-quarter of 2021 to digitize their procurement and external workforce management.

It’s no surprise that SAP has an overall rating of A which equates to Strong Buy in our POWR Ratings system. SAP has a grade of A for Sentiment, and B for both Value and Stability. It is currently ranked #3 in the Software – Application industry.

Click here to see the additional POWR Ratings for SAP (Growth, Momentum and Quality).

Click here to check out our Software Industry Report for 2021

Telefon AB L.M. Ericsson (ERIC)

ERIC is a Sweden-based company that provides communication infrastructure, services and software solutions to the telecom and other sectors. It offers its products and services to mobile and fixed-network operators, and provides communications networks, telecom services, and multimedia solutions. It operates through four segments–Networks, Digital Services, Managed Services, and Emerging Business and Other.

On May 7, ERIC inked a multi-year agreement with Samsung Electronics (SSNLF) on global patent licenses, including patents relating to cellular technologies and 5G settlements. As part of the deal, the companies will  work on technology cooperation projects to advance the mobile industry in open standardization. In addition, , earlier this year, ERIC entered a strategic partnership with Telarus, the largest privately held technology services distributor in the U.S., to market Ericsson Wireless Office through its large ecosystem of technology consultants.

For its fiscal year 2021 first quarter, ended March 31, ERIC’s adjusted net sales were SEK 49.8 billion ($6 billion), representing a 10% improvement from the prior-year period. The company also witnessed 10% growth in organic sales, primarily driven by market share gains in Networks. In fact, its Networks segment sales grew organically by 15% despite a decline in IPR licensing revenues. Its Digital Services segment also showed remarkable momentum in contract awards, primarily in its cloud native 5G Core portfolio. The adjusted EPS came in at SEK 1.04 ($0.13), rising 31.6% year-over-year.

Analysts expect ERIC’s revenue and EPS to improve 19.6% and 40%, respectively, for the current quarter, ending June 30. Also,  the stock has surpassed consensus EPS estimates in three of the trailing four quarters. The $28.07 billion consensus revenue estimate for the current  year represents a 11.1% rise on a year-over-year basis. Analysts also expect the stock’s current year EPS to grow at 19%.

ERIC has returned 57.6% over the past year. Even though the stock is down 1.5% in the past month, there is a strong momentum in  global 5G demand, on which ERIC is well-positioned to capitalize. To that end, ERIC is making continued research and development investments to further strengthen its portfolio and grow its global footprint. Notably, with lead markets moving forward at fast  pace, they are creating excellent opportunities for ERIC to grow its core business sustainably.

ERIC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating,  which equates to Buy. GSK has an A grade  for Value, and B for Stability. It is ranked #4 of 55 stocks in the B-rated Technology – Communication/Networking industry.

In addition to the POWR Ratings grades we’ve just highlighted, one  can see the ERIC’s ratings for Growth, Momentum, Sentiment and Quality here.

ORCL shares were trading at $78.86 per share on Thursday afternoon, up $0.12 (+0.15%). Year-to-date, ORCL has gained 22.90%, versus a 11.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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