With a year-to-date return of 41.5%, the tech-heavy NASDAQ Composite indicates an impressive trajectory of the US tech industry. So, investors could consider buying quality tech stocks Cisco Systems, Inc. (CSCO), Cognizant Technology Solutions Corporation (CTSH), and NetScout Systems, Inc. (NTCT).
The U.S. tech market accounts for 35% of the world market and is expected to grow 5.4% in 2023. The tech sector in the United States has witnessed exceptional growth, solidifying its position as a central driver of the nation's economy.
Propelled by continuous innovation, substantial investments, and a vibrant ecosystem, this industry has consistently adapted, playing a vital role in job generation and economic advancement. Worldwide, the information technology market is predicted to expand at a 14.7% CAGR to reach $1.36 trillion by 2029.
Additionally, advancements in artificial intelligence, cloud computing, cybersecurity, and the expansion of digital infrastructure are boosting the tech services industry. Moreover, the increasing reliance on technology across various sectors has propelled demand for specialized services, contributing significantly to the industry's expansion.
The global IT Services market is projected to grow at a CAGR of 8.4%, reaching revenues of $1.67 trillion by 2028.
Furthermore, the rise of nearshore outsourcing, the embrace of cloud-based solutions, the integration of robotic process automation, and a heightened focus on knowledge process outsourcing are driving the expansion of the outsourcing industry.
The IT outsourcing market is expected to reach $764.63 billion by 2028, growing at a 5.5% CAGR.
Considering these conducive trends, let's take a look at the fundamentals of the three tech stocks.
Cisco Systems, Inc. (CSCO)
CSCO is engaged in designing, manufacturing, and selling Internet Protocol-based networking and other products related to the communications and information technology industry. The company offers wireless products, routed optical networking, 5G, silicon, optics solutions, etc.
On December 6, CSCO unveiled the Cisco AI Assistant for Security. This marks a major step in making artificial intelligence (AI) pervasive in the Security Cloud, CSCO's unified, AI-driven, cross-domain security platform. The AI Assistant will help customers make informed decisions, augment their tool capabilities and automate complex tasks.
In late November, CSCO announced new integrations between Cisco ThousandEyes and Amazon CloudWatch Internet Monitor (CWIM), a new Internet monitoring service from Amazon Web Services (AWS).
The first-of-its-kind integration empowers customers with unparalleled visibility into their cloud deployments, enabling them to deliver unmatched optimized digital experiences.
The company pays an annual dividend of $1.56, which translates to a yield of 3.13% on the current market price, higher than its four-year average dividend yield of 3.06%
CSCO’s revenue increased 7.6% year-over-year to $14.67 billion during the fiscal 2024 first quarter that ended October 28, 2023. Its operating income grew 20.8% from the year-ago quarter to $4.28 billion. The company’s net income and EPS came in at $3.64 billion, and $0.89, up 36.3% and 36.9% year-over-year, respectively.
Street expects CSCO’s revenue and EPS to improve 3.3% and 4.4% year-over-year to $56.39 billion and $4.05 in the fiscal year ending July 2025, respectively. It surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.
The stock has gained 4.7% year-to-date to close the last trading session at $49.87.
CSCO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
CSCO also has an A grade for Quality and a B for Stability. It is ranked #6 out of 46 stocks in the Technology – Communication/Networking industry.
Access CSCO’s additional Growth, Value, Sentiment, and Momentum ratings here.
Cognizant Technology Solutions Corporation (CTSH)
CTSH is a professional services company that provides consulting technology and outsourcing services in North America, Europe, and internationally. It operates through four segments: Financial Services; Health Sciences; Products and Resources; and Communications, Media, and Technology.
On December 13, CTSH announced plans to acquire Thirdera, an Elite ServiceNow Partner, aiming to create a $1 billion combined business. The goal is to form one of the world's largest and most qualified ServiceNow partnerships, adding 940 employees to CTSH's ServiceNow Business Group and expanding globally.
CTSH distributes $1.16 annually as dividends, which yields 1.52% on the current market price. Its dividend payouts have raised at a CAGR of 9.7% over the past three years.
CTSH’s revenues for the third quarter ended September 30, 2023, increased marginally year-over-year to $4.90 billion. The company’s adjusted income from operations came in at $758 million. In addition, its net income and adjusted EPS were $525 million and $1.16, respectively.
CTSH’s EPS for the quarter ending December 31, 2023, is likely to increase 2.8% year-over-year to $1.04. Its revenue for the same quarter is expected to be $4.77 billion. It surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has gained 35.2% over the past year to close the last trading session at $76.17. It has returned 11.3% over the past month.
CTSH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Stability and Quality. Within the nine stocks in the A-rated Outsourcing – Tech Services industry, it is ranked #2.
Click here to access CTSH’s Growth, Value, Momentum, and Sentiment ratings.
NetScout Systems, Inc. (NTCT)
NTCT provides service assurance and cybersecurity solutions to protect digital business services against disruptions globally.
In November, NTCT launched Adaptive DDoS Protection for Arbor Edge Defense (AED) to counter DNS water torture attacks, which surged by 353% in the first half of 2023, disrupting Authoritative DNS servers. The new launch should boost the company’s revenue stream.
During the fiscal second quarter that ended September 30, 2023, NTCT’s total revenue and non-GAAP gross profit stood at $196.80 million and $158.03 million, respectively. The company’s non-GAAP net income and net income per share stood at $44.54 million and $0.61, up 7.8% and 7% year-over-year, respectively.
NTCT expects revenue (both GAAP and non-GAAP) in the range of $840 million to $860 million. Its non-GAAP net income per share is expected to be $2 to $2.20, reflecting the repurchase of approximately 1.10 million shares during the second fiscal quarter of 2024.
Analysts expect NTCT’s revenue and EPS to rise 12.5% and 107.9% year-over-year to $234.10 million and $0.79 in the fiscal fourth quarter ending March 2024.
The stock has gained 9% over the past month to close the last trading session at $22.67.
NTCT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
NTCT has an A grade for Value and a B for Quality. Within the Technology - Services industry, it is ranked #20 among 76 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Sentiment. Get all ratings of NTCT here.
What To Do Next?
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CSCO shares were trading at $49.54 per share on Monday morning, down $0.33 (-0.66%). Year-to-date, CSCO has gained 7.18%, versus a 24.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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