Growing digitization initiatives are propelling the tech industry's growth. This trend is being driven by an increasing reliance on cloud computing, data analytics, and artificial intelligence (AI), all of which are critical components of digital transformation initiatives.
Therefore, investors could consider buying fundamentally strong tech stocks such as Lenovo Group Limited (LNVGY), Viavi Solutions Inc. (VIAV), and Stratasys Ltd. (SSYS).
Before exploring the fundamentals of these stocks, let’s discuss why the tech industry is well-positioned for growth.
Despite a hawkish Federal Reserve, 2023 was an excellent year for the tech sector, with the Nasdaq Composite up 43%. The strong performance was driven by optimism around the Fed’s expected rate cuts in 2024 and hype around generative AI. With the prospect of lower borrowing costs and an improving macro environment this year, tech stocks are likely to benefit.
The technology industry is one of the world's fastest-growing sectors, given its continuous innovations and developments. Tech companies are continuously pushing the envelope to create ground-breaking products and services to help enterprises remain ahead of the competition. Gartner forecasts worldwide IT spending to rise 6.8% year-over-year to $5 trillion this year.
Emerging technologies such as machine learning, AI, and the Internet of Things are increasing demand for advanced hardware, as they require higher processing power and greater data storage requirements. The IT hardware market is predicted to increase at a 7.9% CAGR, reaching $191.03 billion by 2029.
In addition, businesses are incorporating 3D printing to reduce production time, cut costs and waste, improve workflows, create complex designs, and revolutionize supply chains through on-demand and localized manufacturing. The global 3D printing market is projected to grow at a CAGR of 23.6% to reach $150.20 billion by 2032.
3D printing is popular across industries such as healthcare, automotive, aerospace, and consumer goods. Furthermore, the rollout of 5G, the integration of the Internet of Things (IoT) in devices, and the growth of cloud-based telecommunication networks are driving the demand for advanced communication and networking equipment.
The global communication equipment market is expected to grow at a CAGR of 15.8% to reach $107.46 billion by 2030. Moreover, investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund’s (XLK) 44.6% returns over the past year.
Considering these conducive trends, let’s take a look at the fundamentals of the featured tech stocks.
Lenovo Group Limited (LNVGY)
Headquartered in Quarry Bay, Hong Kong, LNVGY is an investment holding company that develops, manufactures, and markets technology products and services. It operates through the segments of Intelligent Devices Group, Infrastructure Solutions Group, and Solutions and Services Group.
On March 18, 2024, LNVGY announced new hybrid AI solutions built in collaboration with NVIDIA Corp. (NVDA) at NVIDIA GTC, a global AI conference. These solutions bring the power of tailored generative AI applications to every enterprise and cloud, bringing transformational capabilities to every industry.
These new solutions are designed to accelerate AI adoption and deployment, enabling organizations to leverage the latest advancements in AI technology. Lenovo's collaboration with NVIDIA ensures that businesses have access to cutting-edge AI tools that can drive innovation and growth.
LNVGY’s trailing-12-month Return on Common Equity of 17.83% is 486.6% higher than the 3.04% industry average. Its 1.37x trailing-12-month asset turnover ratio is 125.9% higher than the 0.61x industry average. Also, its 9.45% trailing-12-month Return on Total Capital is 295.6% higher than the 2.39% industry average.
LNVGY’s revenue for the third quarter that ended December 31, 2023, came in at $15.72 billion, up 3% year-over-year. Likewise, the company’s net income attributable to equity holders and earnings per share came in at $337 million and $2.81, respectively. Its gross profit margin rose 0.6 percentage points year-over-year to 16.5%.
Street expects LNVGY's revenue for the quarter ending March 31, 2024, to increase 3.5% year-over-year to $13.08 billion. For fiscal 2025, LNVGY’s revenue and EPS are expected to increase 8.6% and 38.3% year-over-year to $61.15 billion and $1.94, respectively.
Over the past year, the stock has gained 28.2% to close the last trading session at $24.14.
LNVGY's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LNVGY has an A grade for Value and Momentum. Within the B-rated Technology - Hardware industry, it is ranked #16 out of 37 stocks. To see the additional ratings of LNVGY for Growth, Stability, Sentiment, and Quality, click here.
Viavi Solutions Inc. (VIAV)
VIAV provides network test, monitoring, and assurance solutions for communications service providers (CSPs), hyperscalers, network equipment manufacturers (NEMs), original equipment manufacturers (OEMs), and others. The company operates through the Network Enablement (NE), Service Enablement (SE), and Optical Security and Performance Products (OSP) segments.
On March 5, 2024, VIAV announced that it had agreed to acquire British telecommunications testing firm Spirent Communications plc (SPMYY) for approximately £1.01 billion ($1.28 billion).
The deal is expected to help VIAV boost its expertise in artificial intelligence and machine learning, security, cloud-native architecture and automation.
VIAV’s trailing-12-month gross profit margin of 59.06% is 20.5% higher than the industry average of 49.02%. Its trailing-12-month EBITDA margin of 10.30% is 15.2% higher than the industry average of 8.94%. Additionally, its 3.03% trailing-12-month CAPEX / Sales is 32.5% higher than the 2.29% industry average.
During the fiscal second quarter that ended December 30, 2023, VIAV’s revenue and gross profit came in at $254.50 million and $148 million, respectively. Moreover, its adjusted EBITDA stood at $43 million. For the same quarter, its non-GAAP earnings per share stood at $0.11.
As of December 30, 2023, VIAV’s current assets stood at $965.30 million, compared to $945 million as of July 1, 2023. Also, its total assets stood at $1.86 billion, compared to $1.85 billion for the same period.
For the quarter ending March 31, 2024, VIAV’s revenue is expected to increase 0.7% year-over-year to $249.58 million. Its EPS for the quarter ending June 30, 2024, is expected to increase 8.6% year-over-year to $0.11. Over the past month, the stock has gained marginally to close the last trading session at $9.67.
VIAV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 out of 46 stocks in the Technology - Communication/Networking industry. It has a B grade for Growth and Quality. Click here to see the additional ratings of VIAV for Value, Momentum, Stability, and Sentiment.
Stratasys Ltd. (SSYS)
SSYS provides connected polymer-based 3D printing solutions. It offers a range of 3D printing systems, which includes polyjet printers, Fused Deposition Modeling (FDM) printers, stereolithography printing systems, origin P3 printers, and SAF printers for manufacturing, tooling and rapid prototyping, and various vertical markets. It also provides consumable materials and stereolithography materials.
On March 4, 2024, SSYS announced that it had acquired Arevo’s technology portfolio, including its Intellectual Property (IP) estate. SSYS plans to leverage Arevo’s technology to enhance its additive manufacturing capabilities. The acquisition is expected to position SSYS as a leader in the 3D printing industry.
SSYS’ trailing-12-month gross profit margin 44.53% is 46.7% higher than the industry average of 30.37%.
SSYS’ revenues for the fourth quarter, which ended December 31, 2023, came in at $156.34 million. Its non-GAAP gross profit stood at $76.32 million. The company’s non-GAAP operating income came in at $2.02 million. In addition, its non-GAAP net income amounted to $1.65 million. Also, its non-GAAP EPS came in at $0.02.
Street expects SSYS’ EPS and revenue for the quarter ending September 30, 2024, to increase 45.8% and 0.2% year-over-year to $0.06 and $162.53 million, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Shares of SSYS have declined 8.4% over the past six months to close the last trading session at $11.47.
It’s no surprise that SSYS has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Growth and Momentum. It is ranked first among the seven stocks in the Technology – 3D Printing industry. Beyond what is stated above, we’ve also rated SSYS for Value, Stability, Sentiment, and Quality. Get all SSYS ratings here.
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LNVGY shares were trading at $24.09 per share on Wednesday morning, down $0.05 (-0.19%). Year-to-date, LNVGY has declined -13.87%, versus a 8.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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