Is It Too Late to Buy Technology? A Quantitative Analysis from ValuEngine
As investors ponder the best timing to enter or expand their positions in technology stocks amid market volatility, new insights from ValuEngine provide a data-driven perspective on whether tech equities still offer attractive opportunities. According to ValuEngine’s latest quantitative models, the answer is a resounding no — it is not too late to buy technology.
Technology Sector Outlook
ValuEngine analyzed approximately 4,000 U.S.-listed stocks and roughly 570 of these belong to the Technology sector. When ranked across 15 sectors for expected 12-month price returns, Technology ranks fourth overall based on ValuEngine’s forecast model. The model equally weights stocks across market caps, indicating robust investment potential exists well beyond the so-called “Magnificent Seven” mega-cap tech giants.
Within the technology universe, about 32% (around 180 stocks) currently earn Buy or Strong Buy ratings. However, many of these recognized opportunities (110 stocks) are small-caps with less than $20 million in market capitalization—below thresholds for many institutional investors due to liquidity and fiduciary standards.
Narrowing the focus to 70 technology stocks above the $20 million market cap cutoff that also pass liquidity screens reveals that while forecasted price returns remain significantly above median stocks, risk levels are elevated. Specifically, 63 out of these 70 stocks are rated as overvalued—which, while signaling potential future gains, also warns of increased valuation risk.
Strong Buy Tech Stocks Trades Below Fair Value
After excluding overvalued risks, ValuEngine identifies 7 technology stocks—with market caps greater than $20 million—that trade below calculated fair value yet still earn a Strong Buy (rating 5). This subset embodies compelling “growth at a reasonable price” (GARP) opportunities.
Here are the seven recommended tech stocks with details:
| Ticker | Company Name | Industry | Last Close | Fair Value | 1Y Forecast Return | VE Rating |
|---|---|---|---|---|---|---|
| ZM | Zoom Communications | Internet Software | $75.39 | $151.60 | 17.65% | 5 |
| IFNNY | Infineon Technologies | Elec. Semiconductors | $40.66 | $57.53 | 17.76% | 5 |
| XYZ | Block Inc | Internet Software | $80.57 | $111.78 | 16.70% | 5 |
| TWLO | Twilio Inc-A | Internet Software | $131.51 | $156.74 | 21.61% | 5 |
| HUBS | HubSpot Inc | Internet Software | $559.23 | $631.97 | 11.78% | 5 |
| MRVL | Marvell Technology | Elec. Semiconductors | $75.91 | $77.54 | 13.62% | 5 |
| NOW | ServiceNow Inc | IT Services | $985.75 | $997.41 | 14.55% | 5 |
Company Profiles and Market Presence
- Zoom Communications (ZM): Offers an AI-first work collaboration platform with HD video conferencing, cloud telephony, and integrated team chat. Headquartered in San Jose, California.
- Infineon Technologies (IFNNY): German-based semiconductor manufacturer specializing in automotive, industrial power sensors, and connected secure systems.
- Block Inc (XYZ): Originally Square, Inc., offers financial and commerce ecosystems including Square POS and Cash App; based in Oakland, California.
- Twilio Inc (TWLO): Provides cloud communications software and APIs enabling messaging, voice, and marketing campaigns globally; headquarters in San Francisco.
- HubSpot Inc (HUBS): Cloud-based CRM platform combining sales, marketing, customer service and content management hubs; Cambridge, Massachusetts.
- Marvell Technology (MRVL): Designs semiconductor solutions spanning data infrastructure, connectivity, and processors; headquartered in Wilmington, Delaware.
- ServiceNow Inc (NOW): Cloud platform enabling digital workflows with AI, robotic process automation, and no-code development tools; based in Santa Clara, California.
Each of these stocks is priced meaningfully below ValuEngine’s fair value estimate, with Zoom Communications nearly 100% undervalued, and others like Infineon, Block, Twilio, and HubSpot showing substantial undervaluation. Marvell and ServiceNow are slightly undervalued but offer solid growth prospects at reasonable prices.
Broader Technology Sector and ETFs
Regarding the well-known tech megastocks — the “Magnificent Seven” — notable firms like Nvidia (NVDA) and Meta Platforms (META) receive top ratings at Strong Buy level, while Google (GOOGL), Amazon (AMZN), Microsoft (MSFT), and Tesla (TSLA) attain Buy ratings. Apple Inc. (AAPL) remains rated Hold, reflecting caution due to valuation.
Internationally, stocks such as Chinese KE Holdings (BEKE) and Canadian Shopify (SHOP) also garner high ratings within the technology sector.
For investors seeking diversified exposure, ValuEngine and ETFdb data highlight the top 20 technology ETFs by assets under management. Leading ETFs include:
- Invesco QQQ Trust (QQQ) — $361.1B AUM, YTD price change +11.4%, expense ratio 0.20%
- Vanguard Information Technology ETF (VGT) — $98.3B AUM, +11.9% YTD, expense 0.09%
- Technology Select Sector SPDR Fund (XLK) — $83.5B AUM, +13.96% YTD, expense 0.09%
- VanEck Semiconductor ETF (SMH) — $26.5B AUM, +20.33%, expense 0.35%
- iShares U.S. Technology ETF (IYW) — $22.5B AUM, +13.76%, expense 0.39%
Other notable ETFs include the ARK Innovation ETF (ARKK), with a notable 35.35% YTD gain, and the KraneShares CSI China Internet ETF (KWEB) rising over 23% YTD despite geopolitical concerns.
Conclusion: Not Too Late to Buy Technology
ValuEngine’s data-driven analysis suggests that although many technology stocks exhibit elevated valuations adding risk, select stocks offer compelling value well below fair price. With strong earnings prospects, innovative product lines, and ongoing digital transformation driving demand, the technology sector remains an attractive arena for investors seeking growth.
For prudent investors focused on liquidity and valuation disciplines, a targeted approach to buying undervalued, strong-rated technology stocks may prove rewarding over the next 12 months. Complementing individual equity picks with broad-based technology ETFs can also provide diversified exposure to the expanding tech market.
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This comprehensive analysis is based on ValuEngine’s latest quantitative models and stock forecasts as of early August 2024. Interested investors can explore full reports, sector analyses, and ETF insights at www.ValuEngine.com, which offers a free two-week trial for new users.
