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.
However, growth stocks, primarily technology, suffered in August as several bad news hit Wall Street. On Aug 1, Fitch Ratings downgraded the U.S long-term foreign currency issuer default rating to AA+ from AAA. On Aug 15, Fitch Ratings warned that it might downgrade the ratings of more than a dozen large U.S. banks in the near future.
On Aug 8, Moody’s Investors Service cut the rating of 10 small and mid-sized U.S. banks by a single notch. The rating agency put six big banks under review for a potential downgrade. Moody’s also changed its rating outlook to negative for 11 banks. On Aug 21, S&P Global cut credit ratings on some regional lenders with high commercial real estate exposure.
Moreover, Fed Chairman Jerome Powell’s warning of more hikes in interest rates along with a prolonged economic downturn in China, raised questions about global economic growth and the Fed’s ability of a soft landing of the economy.
However, the robust fundamentals of the U.S. economy reduce concerns of a near-term recession. Additionally, the blockbuster earnings results on the recently reported quarter of NVIDIA — the largest global manufacturer of generative AI chipsets — raised expectations of investors that the market for AI will show strong growth in the coming decade.
Consequently, technology stocks regained momentum. The tech-heavy Nasdaq Composite rose 2.3% last week, terminating a three-weak losing streak. Year to date, the tech-laden index has surged nearly 30%.
Our Top Picks
We have selected five Nasdaq Composite-listed technology stocks that have strong potential for the rest of 2023. These stocks have seen positive earnings estimate revisions in the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy).
NVIDIA Corp. NVDA reported second-quarter fiscal 2024 adjusted earnings of $2.70 per share, surpassing the Zacks Consensus Estimate of $2.09. This compares to earnings of $0.51 per share a year ago.
NVDA posted revenues of $13.51 billion for the quarter, outpacing the Zacks Consensus Estimate by 20.89%. This compares to year-ago revenues of $6.7 billion. Management sees third-quarter revenues of $16 billion versus the Zacks Consensus Estimate of $12.34 billion.
Over the years, the worldwide leader of the NVDA has shifted its focus from PC graphics to AI- based solutions that support high-performance computing, gaming, and virtual reality platforms. NVDA’s A100 and H100 AI chips are used to build and run AI applications, including OpenAI’s ChatGPT.
NVIDIA has an expected revenue and earnings growth rate of 62.9% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 12.8% over the last seven days.
Workday Inc. WDAY has been benefiting from solid momentum in human capital and financial management portfolio. WDAY’s cloud-based business model is increasingly gaining traction. Strong emphasis on the integration of generative AI in Workday products and developing various AI-driven applications to drive more value is a tailwind.
Partnership expansion with Alight to deliver an integrated payroll experience to customers across Europe will likely strengthen WDAY’s global footprint. In addition, WDAY is expanding its portfolio beyond core HCM solutions into the financial domain and is customizing them for diverse industries and verticals.
WDAY has an expected revenue and earnings growth rate of 15.3% and 46.2%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last 30 days.
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.
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 30 days.
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.
Paylocity Holding has an expected revenue and earnings growth rate of 19.9% and 8.4%, respectively, for the current year (ending June 2024). The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 30 days.
Manhattan Associates Inc. MANH develops, sells, deploys, services, and maintains software solutions to manage supply chains, inventory, and omni-channel operations. MANH offers Manhattan SCALE, a portfolio of logistics execution solutions that provide trading partner management, yard management, optimization, warehouse management, and transportation execution services, and Manhattan Active, a set of enterprise and omnichannel solution.
Manhattan Associates has an expected revenue and earnings growth rate of 16.1% and 12%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the last 30 days.
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Manhattan Associates, Inc. (MANH): Free Stock Analysis Report
Super Micro Computer, Inc. (SMCI): Free Stock Analysis Report
Workday, Inc. (WDAY): Free Stock Analysis Report
Paylocity Holding Corporation (PCTY): Free Stock Analysis Report
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