As the economy responds to the rate cut, high-beta tech stocks may provide superior returns for those willing to endure short-term turbulence. Companies in the tech sector and software applications are particularly poised to benefit. These stocks offer the potential for outsized returns as they react more dramatically to market shifts.
Therefore, for risk-tolerant investors, now might be an opportune time to consider looking into fundamentally sound high-beta tech stocks, Palantir Technologies Inc. (PLTR), Shopify Inc. (SHOP), and AppLovin Corporation (APP) for outsized returns.
The recent rate cut by the Federal Reserve has bolstered the tech sector, which relies heavily on cheap capital for R&D and innovation. The companies investing in adverse technologies now have greater financial flexibility and are paving the way for new growth opportunities.
In the third quarter of 2024, the real Gross Domestic Product (GDP) increased at an annual rate of 2.8%. This increase is largely reflected due to increases in consumer spending, federal government spending, and business investment.
Tech stocks with high beta values represent opportunities for daring investors willing to navigate market volatility for potentially exuberant returns. Beta, a measure of a stock’s volatility compared to the broader market, often correlates with higher returns during periods of market growth.
Moreover, the correlation between risk and reward in high-beta stocks requires investors to remain vigilant. While these stocks can outperform in bull markets, they are equally susceptible to steep declines during market downturns.
With that in mind, let’s dive into the fundamental aspects of the above-mentioned stocks in detail:
Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms for the intelligence community to assist in counterterrorism investigations and operations internationally. The company has four principal software platforms, including Palantir Gotham, Palantir Foundry, Palantir Apollo, and Palantir Artificial Intelligence Platform.
On December 3, PLTR announced that FedRAMP High Authorization has been granted for Palantir Federal Cloud Service and Palantir Federal Cloud Service-Supporting Services. This authorization is a government-wide program that promotes the adoption of secure cloud services across the federal government by providing a standardized approach. The authorization enables PLTR to uphold the highest security standards in the industry.
In terms of the trailing-12-month net income margin, PLTR’s 18.01% is 389.9% higher than the 3.68% industry average. Similarly, its 29.6% trailing-12-month levered FCF margin is 160.6% higher than the industry average of 11.37%. Also, its trailing-12-month ROCE of 12.40% compares to the industry average of 4.29%.
For the fiscal third quarter that ended September 30, 2024, PLTR achieved a 30% year-over-year increase in revenue, totaling $725.52 million. Its adjusted income from operations amounted to $275.52 million, reflecting an increase of 68.7% from the prior year’s quarter. The company’s adjusted EBITDA increased 64.9% year-over-year to $283.60 million, with an adjusted operating margin of 39% (up 800 bps year-over-year).
In addition, the PLTR’s adjusted net income stood at $241.56 million, indicating a 55.8% growth from the prior-year quarter period, while its earnings per share came in at $0.10, up 42.9% year-over-year. Also, the adjusted free cash flow rose 208.5% from the prior year’s period to $434.54 million.
The consensus revenue estimate of $776.20 million for the fiscal fourth quarter (ending December 2024) represents a 27.6% increase year-over-year. The consensus EPS estimate of $0.11 for the current quarter indicates a 38.1% improvement year-over-year. The company has an impressive surprise history; it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
PLTR shares have surged 250.1% over the past year and 313.3% year-to-date to close the last trading session at $70.96. Its 24-month beta is 2.80.
PLTR’s stance is apparent in its POWR Ratings. The stock has an A grade for Quality and B for Growth. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Among the 18 stocks in the A-rated Software - SAAS industry, it is ranked #15. Click here to see the additional PLTR ratings (Value, Momentum, Stability, and Sentiment).
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP is a global commerce company. The company’s platform enables merchants to display, manage, market, and sell their products through various sales channels, manage products and inventory, and process orders and payments.
The stock’s trailing-12-month net income margin of 16.84% is 385.2% higher than the industry average of 3.68%. Similarly, its 11.22% trailing-12-month ROTA is 467.2% above the industry average of 1.98%. Also, its trailing-12-month asset turnover ratio of 0.72x compares favorably to the industry average of 0.62x.
In the fiscal third quarter that ended on September 30, 2024, SHOP’s revenue increased 26.1% year-over-year, amounting to $2.16 billion. The company’s gross profit rose 24.1% from a year-ago period to $1.12 billion.
The company’s operating income came in at $283 million, and its net income stood at $828 million, up 132% and 15.3% year-over-year, respectively. In addition, SHOP’s free cash flow amounted to $421 million, representing an increase of 52.5% year-over-year.
Street expects SHOP’s revenue for the fiscal fourth quarter (ending December 2024) to increase 27.2% year-over-year to $2.73 billion. Moreover, its EPS estimate of $0.43 for the same period indicates a 25.4% year-over-year growth. In addition, it surpassed the consensus revenue estimates in each of the trailing four quarters, which is promising.
The stock has gained 89.1% over the past six months and 51% over the past three months to close the last trading session at $111.86. It has a two-year beta of 2.34.
SHOP’s POWR Ratings reflect this outlook. It has an A grade for Sentiment and a B for Momentum. It is ranked #14 out of 25 stocks in the Internet - Services industry. To see the other ratings of SHOP for Growth, Value, Stability, and Quality click here.
AppLovin Corporation (APP)
APP engages in building a software-based platform for advertisers to enhance the marketing and monetization of their content worldwide. The company operates through two segments: Software Platform and Apps.
APP's trailing-12-month ROCE and ROTA of 113.06% and 21.18% are 2537.1% and 970.9% higher than their respective industry averages of 4.29% and 1.98%. Likewise, its trailing-12-month EBIT margin of 35.81% is 576.7% above the industry average of 5.29%.
APP’s revenue for the third quarter (ended September 30, 2024) increased 38.6% year-over-year to $1.19 billion. Its income from operations increased 187.1% year-over-year to $534.93 million. Its net income came in at $434.42 million and $1.25 per share, up 299.9% and 316.7% year-over-year, respectively.
APP’s adjusted EBITDA rose 72.1% from a year-ago period to $721.62 million. Also, the company reported a free cash flow of $1.38 billion, indicating a 97.6% growth from the prior year’s quarter.
Analysts expect APP’s revenue for the fourth quarter (ended December 2024) to increase 31.9% year-over-year to $1.26 billion, while its EPS for the same quarter is expected to grow 155.4% from the prior year to $1.25. Moreover, the company has consistently exceeded expectations, surpassing the consensus EPS estimates in each of the trailing four quarters.
Shares of APP have gained 858.3% over the past year and 488.7% over the past nine months to close the last trading session at $366.55. Also, it has a 24-month beta of 3.31.
APP’s fundamentals are reflected in its POWR Ratings. The stock has an A grade for Quality and a B for Growth and Sentiment. It is ranked #56 out of 127 stocks in the Software - Application industry.
Beyond what is stated above, we’ve also rated APP for Value, Momentum, and Stability. Get all of APP’s ratings here.
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PLTR shares were trading at $68.82 per share on Wednesday afternoon, down $2.14 (-3.02%). Year-to-date, PLTR has gained 300.82%, versus a 28.89% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
