Tech stocks have enjoyed a bit of relief this year, but it’s unclear whether the tides will turn again. The latest inflation number seemed to cause investor sentiment to turn, and more rate hikes seem necessary to stomp out inflation, even if it means setting the stage for a landing that’s a tad less soft.
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In any case, Wall Street analysts continue to favor the following tech stocks listed below. They aren’t immune to the headwinds ahead, but after more than a year of turbulence, each name seems to be trading at a historically attractive multiple.
Therefore, let’s weigh in on the following Strong-Buy-rated tech names — TSM, BABA, and NOW — that may still be worth a buy as the tech rally takes a bit of a breather.
Taiwan Semiconductor (NYSE:TSM)
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) initiated a sizeable stake in the semiconductor giant last year, only to ditch 86% of its stake just a few months later. As a financial behemoth known for long-term investment, the move was a bit puzzling.
Given the timing of the buys and sells, it’s unlikely that the recent share sale was a move to lock in a profit. Shares of TSM suffered quite a plunge in autumn, only partially recovering by year’s end. Despite Berkshire’s trim, I am bullish.
It’s unknown who made the buy and sell decisions over at Berkshire. Regardless, it seems like demand may not be as robust as we learn more about the potential recession to come. In any case, TSM stock still looks incredibly cheap at 14.8 times trailing earnings, which is miles below the semiconductor industry average P/E of 41.6 times.
Taiwan Semi’s capital spending plan is now tamer, with $32 billion – $36 billion in the budget, lower than the $36.3 billion from last year. Despite the budget cuts, Taiwan Semi continues to be a leader in the space, with its expansion plans still in full swing.
As an economic downturn eats into chip demand, TSM stock is sure to be a choppy ride. However, longer term, I do think Taiwan Semiconductor stock still looks undervalued, even if Berkshire has reasons to trim.
What is the Price Target for TSM Stock?
Wall Street loves Taiwan Semiconductor, with a “Strong Buy” rating based on four unanimous Buys. The average TSM stock price target of $104.33 implies 15.8% gains from here.
Alibaba (NYSE:BABA)
Alibaba is a Chinese tech titan that is back on the retreat after enjoying a massive rally off its October 2022 lows. Shares surged more than 100% from trough to peak before slipping just north of 22%. Indeed, Chinese tech giants are known to be volatile movers. With BABA stock trending lower again, I do think there’s a reason for optimism as the stock looks to shed its weaker-handed investors. I am bullish.
In the fourth quarter, The Big Short’s Michael Burry took a stake in the ailing e-commerce giant Alibaba. Though it’s unclear as to what Burry has done with the investment to date, I do think the move was a huge vote of confidence in the inevitability of Chinese stocks.
Yes, there are added risks to betting on Chinese stocks. However, in terms of value for growth, it’s tough to stack up against the likes of Alibaba, especially as the Chinese economy reopens from lockdowns. Add an upbeat AliCloud offering into the equation, and I think Alibaba is a Chinese name that’s well worth the risk as negative momentum picks up again.
At writing, shares of BABA go for 11.5 times forward earnings. For a firm capable of sustaining double-digit growth over time, I find the multiple absurdly low.
What is the Price Target for BABA Stock?
Analysts have a “Strong Buy” rating on Alibaba based on 10 unanimous Buys assigned in the past three months. The average BABA stock price target of $143.89 implies 52.8% upside potential from current levels.
ServiceNow (NASDAQ:NOW)
ServiceNow is a SaaS firm that got cut in half from peak to trough. Though shares trended higher to date on the back of a solid fourth-quarter earnings result ($2.28 EPS vs. $2.02 estimate) on $1.9 billion in revenue, ServiceNow still stands out as a growth stock. I remain bullish.
At 12.2 times sales, NOW is still considerably more expensive than the software industry average of 9.2 times. It is worth noting that ServiceNow has held up far better than expectations amid the headwinds, with 20% in top-line growth.
For now, guidance is calling for a very solid 22% – 22.5% in year-over-year growth. ServiceNow is also relatively steady, while other big-tech firms engage in mass layoffs. Only time will tell if cloud transformation tailwinds will help ServiceNow offset recession headwinds. If the firm can deliver, its premium to the peer group could expand further, and it may be able to avoid steep cost cuts.
What is the Price Target for NOW Stock?
Wall Street is upbeat on ServiceNow, with a “Strong Buy” consensus rating, including 22 Buys and two Holds. The average NOW stock price target of $514.70 implies 16.5% upside potential from here.
The Takeaway
Tech is feeling the pressure again, but the following three names seem more than capable of solid gains throughout the year. Of the three, analysts expect the biggest returns from Alibaba.
