Wall Street rebounded in the first seven months of 2023 after a highly disappointing 2022. The rally was primarily led by growth stocks, especially, technology stocks. Consequently, the tech-heavy Nasdaq Composite Index took the lead role in enabling U.S. stock markets to resume their northward journey.

Moreover, the tech rally in the first half was led by a massive thrust toward artificial intelligence (AI), especially generative AI. The rapid penetration of digital technologies and the Internet worldwide during the lockdown, led to the significant adoption of AI.

Although, U.S. stock markets, particularly, technology stocks are facing volatility in August, we expect the long-term trajectory to remain bullish. The fundamentals of the economy remain robust as revealed by the labor market and retail sales data of July. Consumer spending stays rock solid despite facing prolonged inflationary pressure and elevated interest rate, which is currently at more than a 22-year high.

We are in the last leg of the second-quarter 2023 earnings season. So far, earnings results are not great but they are not bad either. Moreover, the outlook given by companies that have already reported is far better than expected.

The Bureau of Economic Analysis reported that U.S. GDP grew 2.4% in second-quarter 2023 after rising 2% in the first quarter. The U.S. GDP increased 2.6% in fourth-quarter 2022. On Aug 16, the Atlanta Fed estimated the GDP growth rate to climb 5.8% in the third quarter. These data eliminate the concerns of a large section of economists and financial researchers that the economy may fall into a recession in the near future.

Our Top Picks

We have narrowed our search to five large-cap (market capital $10 billion) technology stocks that are currently trading at a deep discount to their 52-week highs. These stocks have strong growth potential for the rest of 2023 and have witnessed solid earnings estimate revisions within the last 60 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Super Micro Computer Inc. SMCI designs, develops, manufactures and sells energy-efficient, application-optimized server solutions based on the x86 architecture. SMCI’s solutions include a range of rack mount and blade server systems, as well as components. SMCI emphasizes superior product design and uncompromising quality control to produce industry-leading server-boards, chassis and server systems.

Zacks Rank #1 Super Micro Computer has an expected revenue and earnings growth rate of 37% and 31.6%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 53.6% over the last seven days. The stock is currently trading at a 28.9% discount from its 52-week high.

BILL Holdings Inc. BILL is benefiting from an expanding small and medium business clientele, as well as a diversified business model. BILL’s large-scale two-sided network simplifies operations and offers automation and multiple payment choices for both sides of a transaction within a secure and frictionless experience.

Bill.com is leveraging AI that makes its solutions easier to use, more automated and predicted. BILL is also working on integrating generative AI in its solutions to enhance customer experience.

Zacks Rank #2 BILL Holdings has an expected revenue and earnings growth rate of 23.8% and 16.9%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 4.9% over the last 60 days. The stock is currently trading at a 41.6% discount from its 52-week high.

Twilio Inc. TWLO is benefiting from accelerated digital transformation amid growing hybrid working trend. TWLO’s selective acquisitions and strategic investments in businesses and technologies are enhancing its product portfolio and fortifying its global presence.
TWLO is not only gaining traction from a solid expansion of its existing clientele but is also aided by first-time deals with new customers, supported by its firm focus on introducing products and the go-to-market sales strategy. We expect TWLO’s top-line to see a CAGR of about 8.6% through 2023-2025.

Zacks Rank #2 Twilio has an expected revenue and earnings growth rate of 5.5% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.1% over the last seven days. The stock is currently trading at a 26% discount from its 52-week high.

Zscaler Inc. ZS is benefiting from the rising demand for cyber-security solutions owing to the slew of data breaches. The increasing demand for privileged access security on digital transformation and cloud-migration strategies is a key growth driver of ZS.

Zscaler’s portfolio boosts its competitive edge and helps to add users. Moreover, a strong presence across verticals, such as banking, insurance, healthcare, the public sector, pharmaceuticals, telecommunications services, and education, is safeguarding Zscaler from the pandemic’s negative impact. Also, recent acquisitions, like Smokescreen and Trustdome, are expected to enhance ZS’ portfolio.

Zacks Rank #2 Zscaler has expected revenue and earnings growth rates of 28.1% and 28.9%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 7.7% over the last 60 days. The stock price of ZS is currently trading at a 27.8% discount from its 52-week high.

Paylocity Holding Corp. PCTY is benefiting from the growing adoption of its solutions among clients with less than 50 employees. Healthy momentum in PCTY’s core and upper end of the market is a tailwind. The release of the Learning Management System and Community portal, which garnered positive feedback from clients, is encouraging.

PCTY’s regular investments in technological upgrades, along with product innovation, will continue to boost its top line. The addition of on-demand pay to its portfolio is likely to generate more client wins. We expect PCTY’s revenues to witness a CAGR of 23.4% through fiscal 2023-2025.

Zacks Rank #1 Paylocity Holding has an expected revenue and earnings growth rate of 19.9% and 7.4%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 12.5% over the last 30 days. The stock price of PCTY is currently trading at a 27.6% discount from its 52-week high.
Super Micro Computer, Inc. (SMCI): Free Stock Analysis Report

Paylocity Holding Corporation (PCTY): Free Stock Analysis Report

Twilio Inc. (TWLO): Free Stock Analysis Report

Zscaler, Inc. (ZS): Free Stock Analysis Report

BILL Holdings, Inc. (BILL): Free Stock Analysis Report

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