These technology companies are growing backed by innovation and a big addressable market
Global GDP growth depends on various factors of productivity and efficiency. An important driver of growth is the focus on technology and innovation. As the United States shifted focus away from manufacturing, it’s the technological edge that has ensured that the country remains the leading economy in the world. Therefore, IT stocks are always likely to remain in the limelight. Further, in a dynamic world when it comes to technological advancements, it’s important to add attractive stories to the portfolio of IT stocks.
Let me come back to the point of technology being a GDP growth driver with an example. It’s been estimated that blockchain technology will add $2.1 trillion to the global GDP by 2030. Some of the major benefits of using blockchain technology include reduced cost, higher speed and efficiency, improved security, and privacy, among others. Another example, the world is already witnessing the impact of artificial intelligence on growth and efficiency. In fact, AI has the potential to contribute up to $15.7 trillion to the global economy by 2030.
With IT having a major impact on US GDP, as well, let’s now talk about seven of the top IT stocks you may want to consider.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) has been in a steady uptrend. I believe that current levels remain attractive for fresh exposure to this provider of central processing unit products and related technologies.
It’s worth noting that Arm Holdings has shipped 270 billion Arm-based chips all over the world. Further, 99% of smartphones run on Arm-based processors. The Company therefore has a strong market presence globally.
A few years back, Arm was focusing on general-purpose CPUs. Nowadays, the Company has a market-specific tailored solution strategy. Some of the focus sectors include automobile, mobile, consumer electronics, IoT, and cloud. Earnings have been healthy, too. In the fourth quarter, for example, the company posted revenue growth of 29% year over year to $806 million.
In addition, its free cash flow (FCF) was $169 million. This implies an annualized FCF of $700 million with Arm Holdings growing at a robust pace. I see $1 billion in annual FCF in the next year.
Another one of the most popular IT stocks is Amdocs (NASDAQ:DOX), which has been trading sideways. However, a breakout to the upside seems imminent with the stock trading at an attractive forward price-earnings ratio of 14.3. DOX stock also offers a dividend yield of 1.87%.
At the moment, a big opportunity for the company exists in the deployment and monetization of 5G and fiber networks. The serviceable addressable market is expected to swell to $57 billion by 2025.
Last year, the Company also launched Amdocs amAIz, a cutting-edge, enterprise-grade generative AI (GenAI) framework. The framework is expected to address specific challegnes of the telecom industry that includes security, data privacy, scalability, and the complexity of data governance.
It’s worth noting that Amdocs generated $698 million in free cash flows last year. Further, the company has a strong balance sheet with a liquidity buffer of $1.2 billion. This provides ample flexibility to invest in innovation and pursue potential acquisition opportunities.
CrowdStrike (NASDAQ:CRWD) rocketed about 187% higher over the last year. And while it makes sense to wait for a correction, CRWD is among the best IT stocks to buy and hold at the moment.
As an overview, the Company’s CrowdStrike Falcon platform is used to detect threats and breaches. With increasing issues related to cybersecurity, the company’s business has headroom for sustained growth.
An important point to note is that CrowdStrike offers corporate endpoint security, security, and IT operations, managed security services, observability, cloud security, identity protection, threat intelligence, data protection, and cybersecurity generative AI.
Therefore, the solutions are comprehensive and magnifies the addressable market to $100 billion. Additionally, the market size is expected to increase to $225 billion by 2028. This underscores my view on sustained growth.
UiPath (NYSE:PATH) is a provider of robotic process automation solutions. Backed by strong quarterly numbers, PATH stock has trended higher by 57% in the last 12 months. I expect the positive momentum to sustain with positive AI driven tailwinds.
Further, from a growth perspective, UiPath is catering to industries that include public sector, healthcare, financial services, and manufacturing. As these industries witness growth, UiPath will see an increase in annualized renewal run-rate.
For Q3 2024, UiPath reported revenue of $326 million, which was higher by 24% on a year-on-year basis. Further, the Company’s ARR has increased to $1.38 billion. Some of the leading automations in last year were “UiPath Autopilot” and “Intelligent Document Processing Autopilot.”
The former has helped improve productivity across departments and has shorten the adoption curve. Similarly, IDP is a time saving, faster, and a more efficient tool as compared to generative AI. With new product innovation and some strong industry partnerships, I am bullish on healthy growth for UiPath in the coming years.
ServiceNow (NYSE:NOW) returned about 72% in the last 12 months. However, with a forward price-earnings ratio of 72, I would be cautious.
ServiceNow is a provider of cloud-based platforms and services to organizations. For Q4 2023, the company reported revenue growth of 24% on a year-on-year basis to $2.4 billion. Further, as of December 2023, the company reported contract revenue for the next 12 months of $8.6 billion. With investment in workflow automation and generative AI, the Company is positioned to accelerate growth this year and beyond.
It’s also worth mentioning that as of Q4 2023, ServiceNow derived 63% of revenue from North America. There is ample scope for growth in emerging markets. Additionally, a strong renewal rate coupled with customer cohort growth provide visibility for revenue and cash flow upside.
Stem (NYSE:STEM) is an artificial intelligence-driven provider of clean energy solutions and services. Being in a market with positive tailwinds beyond the decade, Stem can be a potential multi-bagger.
The company’s AI-driven enterprise platform, Athena, is used by organizations to deploy and unlock value from their clean energy assets. The Company also provides solutions to improve returns across clean energy projects. This is critical at a time when several emerging clean energy companies are facing margin depression. Overall, Stem is a provider of software, hardware, and services.
For Q3 2023, Stem reported revenue of $134 million, which was higher by 34% on a year-on-year basis. It’s worth noting that Stem expects to achieve positive EBITDA this year. With a contracted backlog of $1.84 billion, revenue growth and margin expansion visibility are encouraging.
Photronics (NASDAQ:PLAB) is the only pure-play photomask company in the United States. Another one of the top IT stocks to consider, it has 11 manufacturing locations in North America, Europe, and Asia.
It’s worth noting that Photronics expects improved margins in high-end and mainstream integrated circuits. This factor coupled with operating leverage will translate into EBITDA margin expansion and cash flow upside. Therefore, the overall story is optimistic and with expansion in China, it’s likely that revenue growth will accelerate.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.