5 Technology Picks in an Inflationary Environment

Tuesday proved to be another rollercoaster day for the stock market as U.S. stocks went up and oil prices fell while U.S. producer prices rose for the month of February. While the turmoil between Russia and Ukraine continued, the focus of investors has turned to the rising inflation in the U.S.

Expectations are high among investors that the Fed will raise its interest rates after its policy meeting today.

In such an inflationary environment, where does this leave the investor? Amid this upheaval, the stock market has seen a broad-based stock sell-off which has seen some of the best technology stocks drop anywhere from 10% to 50% year-to-date.

The team of equity research analysts from Robert W. Baird sees inflation as “solidly entrenched in our economies.” As a result, they picked a few companies from the technology sector, besides the popular names, that “may be better positioned to withstand macro pressures.”

Let us look at the firm’s picks.

Take-Two Interactive (NASDAQ: TTWO)

Video game developer Take-Two Interactive has seen its stock price erode by 20% year-to-date in this volatile environment. This stock pick can seem surprising to investors in a period of inflation, but not according to Baird analyst Colin Sebastian. He noted that in an economic downturn, interactive entertainment proves to be an “attractive sector for investors.”

Moreover, according to the analyst, in periods where many consumers are “cocooning” (similar to the early stages of the pandemic), people turn to video games for entertainment. Sebastian thinks that this period could very well return if consumers are not keen on using their cars as oil prices soar.

One reason for the analyst to favor an interactive entertainment company like TTWO is that he believes that video games “offer a high degree of value compared to other paid entertainment options.” Besides, Sebastian thinks that since a majority of content is available through downloads, video-game companies have “very limited direct exposure to higher input prices.”

Considering this scenario, Sebastian expects TTWO’s core titles including Grand Theft Auto (GTA), NBA 2K, and Red Dead  to perform “relatively well.” Moreover, the analyst expects TTWO shares to benefit from the anticipation of the estimated launch of GTA 6 in FY24. Sebastian opines that TTWO’s acquisition of Zynga “will make the publisher one of the leaders in the casual mobile gaming market.”

As a result, the top-rated analyst is upbeat about the stock with a Buy rating and a price target of $210.

Other analysts echo Sebastian and are bullish, with a Strong Buy consensus rating based on 14 Buys and two Holds. The average TTWO stock prediction is $207.13, implying an upside potential of around 44.4% for the stock.

Navitas Semiconductor (NASDAQ: NVTS)

Ireland-based Navitas Semiconductor was founded in 2014. The power electronics company listed on the Nasdaq last October, and the stock has since tanked about 16% in the past month. Currently, the stock is hovering near to its lowest price range with a closing share price of $8 on March 15. Navitas manufactures gallium-nitride (GaN) power integrated circuits (ICs) and has shipped more than 35 million GaNFast power ICs so far.

The company’s ICs can be used in mobile chargers and according to the company, can result in “charging rates up to 3x faster than silicon-based chargers.”

By Baird analyst Tristan Gerra’s estimate, Navitas has currently cornered around more than 50% of the market when it comes to GaN-based smartphone chargers. The analyst also believes that by virtue of being an emerging technology, GaN powered ICs could “gain a footprint in EVs, data center power suppliers, and solar applications.”

Navitas could stand to benefit from this trend and as a result, Gerra is upbeat about the stock with a Buy rating and a price target of $22.

Other Wall Street analysts are also upbeat with a Strong Buy consensus rating based on a unanimous five Buy ratings. The average Navitas stock prediction is $18.60.

STMicroelectronics NV (NYSE: STM)

STMicroelectronics is a semiconductor company based out of the Netherlands that designs, develops, and manufactures a broad range of products. The company’s four end markets include automotive, industrial, personal electronics and communications equipment, computers, and peripherals.

Some of STM’s major customers include Apple (AAPL), Tesla (TSLA), and Seagate (STX).

Shares of STM have tanked 22.6%  year-to-date and the stock’s closing share price of $38.87 on March 15 is nearer to the stock’s 52-week price low of $34.16. Although, there could be a potential upside to the stock.

Analyst Tristan Gerra considers STM to be “an established SiC [silicon carbide semiconductor products] leader (with Tesla being its key customer).” Moreover, the analyst has projected SIC devices of STM to generate 6% or $1 billion of total semiconductor revenues in 2024.

As a result, the top-rated analyst upgraded the stock from a Hold to a Buy rating and a price target of $62.

Even other analysts on the Street are bullish with a Strong Buy consensus rating based on a unanimous three Buys. The average STMicroelectronics stock prediction is currently $59.

Moreover, the stock commands a high TipRanks Smart Score of 9, supported by positive sentiment by bloggers and investors, as well as increased purchases by hedge funds. All of this indicates that the stock is highly likely to outperform the market.

Five9 (NASDAQ: FIVN)

Five9 is a provider of cloud contact center software and in the past six months, the stock has fallen by about half its value even after the company delivered strong Q4 results.

FIVN delivered record quarterly revenues of $173.6 million, up 36% year-over-year, beating analysts’ estimates of $165.38 million. The company reported earnings of $0.42 per share, up 23.5% from the same quarter last year.

For Baird analyst William Power, cloud software companies like FIVN “have very little supply chain cost exposure” and as such could be better positioned to withstand inflationary pressures.

The stock is one of Power’s top picks for this year and the analyst is positive on the company’s ability “to sustain 30%+ growth long-term, coupled with margin expansion.” According to the analyst, rising adoption of cloud, the digital transformation, and the growing functionality of artificial intelligence (AI) represent long-term growth opportunities for Five9.

Power is optimistic about the stock with a Buy rating and a price target of $125 on the stock.

The remainder of the analysts covering the stock echo Power with a Strong Buy consensus rating based on 16 Buys, one Hold, and one Sell. The average FIVN stock prediction is $150.59.

Twilio (NYSE: TWLO)

Twilio is a communications platform-as-a-service company that is known for its messaging, phone, and application programming interface tools.

Even after the company’s robust results for the most recent fourth quarter, the stock has seen a sell-off from investors and is down 49.3% year-to-date.

In Q4, Twilio’s revenues soared 54% year-over-year to $842.7 million, surpassing the consensus estimate of $767.83 million. However, the company reported a quarterly loss of $0.20 per share compared to earnings of $0.04 per share in the same period a year ago.

However, the lack of profitability in Q4 notwithstanding, Baird analyst William Power remains very positive on the stock over the long-term due to its rapid growth and the “large market opportunity it is pioneering.”

The analyst has rated the stock a Buy with an added price target of $290, implying a considerable upside potential.

Other analysts on the Street have sided with Power, resulting in a consensus rating of Strong Buy, based on 25 Buys and one Hold. Meanwhile, the average TWLO stock prediction is $323.33.

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