Given the strong stock market rally seen this year has been driven by tech, it has almost been forgotten how different things looked at the onset of 2023. Coming off 2022’s bear market, Wedbush analyst Daniel Ives reminds investors that sentiment around tech stocks was “extremely negative with a cloudy macro, Fed overhang, hard landing worries, and softening consumer/ enterprise demand all creating a dark cloud over the tech sector.”
But in the face of such headwinds, the exact opposite occurred in the first half of the year. Driven by the game-changing opportunities represented by developments in AI and led by the mega caps, the tech segment has surged ahead. To wit, the tech-heavy NASDAQ has gained 30% so far in 2023.
But has the rally now run its course? Au contraire says Ives. “Heading into the second half of 2023 we see a much broader tech rally ahead as investors further digest the ramifications of this $800 billion AI spending wave on the horizon and what this means for the software, chip, hardware, and tech ecosystem over the next year.”
As far as Ives is concerned, the green light to own tech is on, and with this in mind, he is pointing investors toward the tech stocks he believes have room to push ahead in 2H23. We ran two of their recent recommendations through the TipRanks database to see what other experts make of these choices. Here’s the lowdown.
C3.ai (AI)
If we’re talking about the impact of AI, then a natural place to start is with one of this year’s main beneficiaries of the AI boom.
C3.ai is a leading enterprise artificial intelligence (AI) software company that specializes in delivering scalable and innovative solutions to businesses across various industries. Since founding in 2009, the firm has established itself as a trusted provider of AI-powered software applications. C3.ai offers a comprehensive and modular AI platform that enables organizations to harness the power of big data, advanced analytics, and machine learning algorithms to drive digital transformation and achieve operational excellence.
It’s a value proposition tailored for these times and the company put it to good use in the most recently reported quarter, for the fiscal fourth quarter (April) of 2023.
While at $72.41 million, revenue came in roughly the same as in the parallel period last year, the figure still beat consensus by $1.07 million. Additionally, adj. EPS of -$0.13 fared better than last year’s -$0.21 and the -$0.17 anticipated on the Street.
However, the company’s full-year revenue guidance failed to impress as it came in at the midpoint of $307.5 million, which falls below the $317.1 million that Wall Street had anticipated.
The shares fell in the aftermath but that has not stopped the stock from being one of the year’s best performers, gaining 200% year-to-date.
Ives, however, thinks there’s more upside in the cards. Along with an Outperform (i.e., Buy) rating, his $50 price target makes room for additional gains of 49% in the year ahead. (To watch Ives’ track record, click here)
Explaining his stance, Ives wrote, “While it will be a bumpy road, we believe c3 has turned a corner and is ready to now capitalize on the $800 billion AI transformational opportunity over the next decade with use cases increasing across the board and the company in a unique position to help lead the charge and monetize this looking ahead the next 12 to 18 months.”
“With the move to a consumption-based pricing model, this is proving to be a good long term strategic move by continuing to monetize on its Generative AI suite with demand and use cases in the field continuing to expand by the day across verticals,” the 5-star analyst further added.
In contrast to Ives, most on the Street appear to think the shares have surged too high at present. Going by the $26.16 average target, a year from now, the stock will be changing hands for a 22% discount. All told, the stock garners a Hold consensus rating, based on 5 Holds, 3 Sells and 2 Buys. (See AI stock forecast)
Alight (ALIT)
Let’s now look at Alight, a tech company that operates in a niche called BPaaS (Business Process as a Service). This refers to the outsourcing of various business processes to a cloud-based service provider and allows organizations to streamline their operations and leverage specialized expertise.
Alight offers a wide range of HR and financial solutions that can be delivered through a cloud-based platform with its services catering to different industries, with a strong focus on wealth, human resources and health. These solutions include benefits administration, payroll processing, talent management, and more. All are provided by the company’s flagship Worklife platform, which makes use of data analytics and AI.
The company notched a major milestone in its latest readout, for 1Q23, by exceeding $1.5 billion in cumulative BPaaS bookings, nine months earlier than it had anticipated.
In the quarter, Alight saw a top-line of $831 million, amounting to a 14.6% year-over-year increase and outpacing the analysts’ forecast by $27.35 million. On the bottom-line, adj. EPS of $0.13 edged ahead of the Street’s call by $0.01. And looking ahead, for the full year, the company is guiding for revenue between $3.47 billion to $3.51 billion (growth of 11% to 12%), at the midpoint, better than consensus at $3.48 billion.
While ALIT shares have gained 9% year-to-date, that is actually a poor return compared to the NASDAQ’s 30% increase. However, Ives thinks the stock is poised to benefit from the company’s latest moves.
“Following the kick-off of its 2023 product roadmap and Alight Worklife’s launch, the company is in a great position to capitalize on the current market opportunity while investing continuously into its go-to-market strategy and future product developments to expand its global footprint and complete its transformation,” Ives opined.
“With a $73 billion TAM and a 2x revenue uplift opportunity in its install base as all clients are now on one platform as the company continues to see strong demand in its flagship Worklife offerings, we believe the company is in a great position to keep capturing market share and be one of the top players in the ERP (enterprise resource planning) landscape,” the top analyst went on to add.
These comments underpin Ives’ Outperform (i.e. Buy) rating on ALIT, which is backed by a $14 price target. This suggests the stock will deliver returns of 54% over the next 12 months.
4 other analysts have recently chimed in with ALIT reviews and all agree with Ives that this is a stock to own, making the consensus view here a Strong Buy. The forecast calls for one-year gains of 47%, considering the average target clocks in at $13.38. (See ALIT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
