The tech industry’s long-term growth prospects look promising due to the increased demand for advanced tech solutions, higher investments in digital transformation initiatives, and growing automation across various industries.
Amid this backdrop, investors could consider buying fundamentally strong tech stocks: International Business Machines Corporation (IBM), NetApp, Inc. (NTAP), and Logitech International S.A. (LOGI).
Before delving deeper into their fundamentals, let’s discuss what’s shaping the tech industry’s prospects.
The tech industry's prospects are shaped by significant investments in digitization, supported by government policies, and the adoption of cutting-edge technologies across sectors to enhance operations, agility, competitiveness, and efficiency. Additionally, the anticipated interest rate cuts by the Federal Reserve this year are expected to support the tech stocks.
Global enterprises' commitment to digital transformation is driving positive momentum for tech companies overall. The rapid adoption of cloud computing and digital technologies, the rising demand for cybersecurity solutions, and the growth of digital transformation initiatives are driving the demand for tech services.
The global IT spending is anticipated to reach $5 trillion this year, reflecting a 6.8% increase over 2023. Moreover, spending on IT services this year is projected to grow 8.7% year-over-year to $1.50 trillion.
Furthermore, there is a growing demand for advanced hardware solutions capable of meeting complex processing demands and increased workloads, driven by the surge in digitization initiatives. The IT hardware market is anticipated to expand at a CAGR of 7.9%, reaching $191.03 billion by 2029.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 51.6% returns over the past year.
Considering these conducive trends, let’s analyze the fundamentals of the abovementioned technology stocks.
International Business Machines Corporation (IBM)
IBM and its subsidiaries provide integrated solutions and services worldwide. The company operates through the Software, Consulting, Infrastructure, and Financing segments.
On February 29, 2024, IBM announced the availability of the open-source Mixtral-8x7B AI model on WatsonX, expanding model options for enterprises to scale AI with trust and flexibility. The optimized version potentially cuts latency by up to 75%, enhancing throughput and offering clients a growing selection of IBM, third-party, and open-source models on the WatsonX platform.
Kareem Yusuf, Senior VP of Product Management & Growth at IBM, said, "By offering Mixtral-8x7B and other models on Watsonx, we're not only giving them optionality in how they deploy AI — we're empowering a robust ecosystem of AI builders and business leaders with tools and technologies to drive innovation across diverse industries and domains."
On February 20, 2024, IBM announced an expanded partnership with Wipro to offer new AI services and support, including the launch of Wipro's Enterprise AI-Ready Platform leveraging IBM Watsonx. The collaboration establishes a centralized tech hub to aid joint clients in their AI endeavors, enhancing enterprise adoption of Generative AI.
In terms of the trailing-12-month EBIT margin, IBM’s 16% is 228.4% higher than the 4.87% industry average. Its 23.10% trailing-12-month EBITDA margin is 147.6% higher than the 9.33% industry average. Likewise, its 7.80% trailing-12-month Return on Total Capital is 199.3% higher than the industry average of 2.61%.
IBM’s total revenues for the fourth quarter, which ended December 31, 2023, rose 4.1% year-over-year to $17.38 billion. Its non-GAAP gross profit increased 6.7% from the year-ago value to $10.44 billion. Also, the company’s non-GAAP income from continuing operations came in at $3.59 billion and $3.87 per share, up 8.8% and 7.5% over the prior-year quarter, respectively. In addition, its net income rose 21.3% year-over-year to $3.29 billion.
For the quarter ending March 31, 2024, IBM’s EPS and revenue are expected to increase 15.9% and 2.3% year-over-year to $1.58 and $14.58 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 43.6% to close the last trading session at $185.03.
IBM’s POWR Ratings reflect a robust outlook. It has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Quality. Within the Technology – Services industry, it is ranked #20 out of 77 stocks. To access the other ratings of IBM for Growth, Value, Momentum, Stability, and Sentiment, click here.
NetApp, Inc. (NTAP)
NTAP provides cloud-led and data-centric services to manage and share data on-premises and private and public clouds worldwide. It operates in two segments: Hybrid Cloud and Public Cloud. The company offers intelligent data management software and storage infrastructure solutions.
In terms of the trailing-12-month EBITDA margin, NTAP’s 21.72% is 132.7% higher than the 9.33% industry average. Likewise, its 70.18% trailing-12-month Return on Common Equity is significantly higher than the 2.93% industry average. Additionally, its 7.63% trailing-12-month Return on Total Assets is 442.2% higher than the 1.41% industry average.
For the fiscal third quarter, which ended January 26, 2024, NTAP’s net revenues increased 5.2% year-over-year to $1.61 billion. Its non-GAAP gross profit rose 14.4% year-over-year to $1.17 billion. The company’s non-GAAP net income increased 36.2% from the year-ago value to $410 million. In addition, its non-GAAP net income per share came in at $1.94, up 41.6% over the prior-year quarter.
Street expects NTAP’s EPS and revenue for the quarter ending April 30, 2024, to increase 12.6% and 4.3% year-over-year to $1.73 and $1.65 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, NTAP’s stock has gained 38.1% to close the last trading session at $89.12.
NTAP’s POWR Ratings reflect its bright prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #7 out of 36 stocks in the A-rated Technology - Hardware industry. It has an A grade for Momentum and Quality and a B for Growth. Click here to see NTAP’s Value, Stability, and Sentiment ratings.
Logitech International S.A. (LOGI)
Headquartered in Lausanne, Switzerland, LOGI and its subsidiaries design, manufacture, and market products that connect people to working, creating, gaming, and streaming worldwide. The company's offerings include pointing devices, corded and cordless keyboards, PC webcams, and other accessories for mobile devices.
On February 27, 2024, LOGI announced the availability of the Casa Pop-Up Desk in North America, offering an innovative all-in-one solution for flexible workspaces following its successful launch in the UK and Australia. Casa Pop-Up Desk features a foldaway design with a wireless keyboard and touchpad, promoting comfort and productivity while considering environmental sustainability.
On January 24, 2024, LOGI announced the availability of Reach, a flexible camera featuring the ‘Logitech StreamCam,’ offering users intuitive adjustments for seamless in-person presentations, classes, and streaming sessions. Reach provides one-handed interaction, 360-degree rotation, and premium video quality, catering to diverse content-sharing needs in education and beyond.
In terms of the trailing-12-month net income margin, LOGI’s 11.44% is 348.2% higher than the 2.55% industry average. Likewise, its 20.60% trailing-12-month levered FCF margin is 135.2% higher than the industry average of 8.76%. Furthermore, the stock’s 1.15x trailing-12-month asset turnover ratio is 88% higher than the industry average of 0.61x.
LOGI’s net sales for the third quarter that ended December 31, 2023, came in at $1.26 billion. The company’s non-GAAP operating income rose 21.6% year-over-year to $248.24 million. For the same quarter, its non-GAAP net income increased 30.3% year-over-year to $241.49 million, and its non-GAAP net income per share grew 34.2% over the previous year’s quarter to $1.53.
Analysts expect LOGI’s EPS for the quarter ending March 31, 2024, to increase 22.2% year-over-year to $0.61. Its revenue for the quarter ending June 30, 2024, is expected to increase 1.9% year-over-year to $993.16 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 61% to close the last trading session at $87.82.
LOGI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Momentum and Quality and a B for Growth and Sentiment. Within the same industry, it is ranked #12. To access the additional grades of LOGI’s for Value and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
IBM shares rose $0.35 (+0.19%) in premarket trading Friday. Year-to-date, IBM has gained 14.17%, versus a 6.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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