Significant investments in digitization, automation, and the adoption of emerging technologies such as generative AI are driving the growth of the tech industry. Moreover, with the Fed indicating three rate cuts next year, tech stocks could stand to benefit.
Given this favorable backdrop, it could be wise to buy fundamentally strong tech stocks: Teradata Corporation (TDC), TTM Technologies, Inc. (TTMI), and Ceragon Networks Ltd. (CRNT).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.
The rising emphasis of enterprises on digital transformation to improve efficiency and reduce operating costs is creating a consistent demand for advanced tech solutions. Gartner forecasts global IT spending to hit $4.69 trillion in 2023, a 3.5% year-over-year increase. It is expected to rise 8% year-over-year to $5.07 trillion next year.
The increasing adoption of cloud technologies, incorporation of business intelligence for forecasting and optimizing operations, integration of AI, and the widespread implementation of IoT are pivotal factors contributing to the optimistic outlook for the tech industry. The U.S. IT Services market is expected to reach $592.43 billion by 2028, growing at a CAGR of 6.5%.
Moreover, rapid technological progress is driving a persistent demand for advanced electrical components. With devices becoming smarter, automated, and interconnected, the need for high-quality components is growing fast. The global electronic components market is expected to grow at a CAGR of 6.8% to reach $368.40 billion by 2032.
Additionally, the growing usage of mobile devices, the integration of the Internet of Things (IoT) in devices, the need for faster connectivity through 5G and broadband satellite internet, and the growth of cloud-based telecommunication networks are boosting the demand for advanced communication and networking equipment.
The global optical communication and networking equipment market is expected to grow at a CAGR of 15.8% to reach $107.46 billion by 2030. Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR Fund ETF’s (XLK) 53.5% returns year-to-date.
With these favorable trends in mind, let’s delve into the fundamentals of the stocks mentioned above.
Teradata Corporation (TDC)
TDC provides a connected multi—cloud data platform for enterprise analytics. It offers Teradata Vantage, a data platform that allows companies to leverage their data across an enterprise, as well as connects various sources of data to drive ecosystem simplification and support customers’ journey to the cloud. They also provide business consulting services and support and maintenance services.
On November 15, 2023, TDC announced Teradata AI Unlimited, its first serverless AI/ML engine in the cloud, integrated into Microsoft Fabric and OneLake, which is Fabric’s unified, multi-cloud data lake. It allows data scientists, data engineers, and developers to seamlessly explore and discover innovative new use cases on-demand and using data at scale.
In terms of forward non-GAAP P/E, TDC’s 21.53x is 11.4% lower than the 24.30x industry average. Its 1.20x forward non-GAAP PEG is 42.7% lower than the 2.09x industry average. Likewise, its 2.31x forward Price/Sales is 21.3% lower than the 2.94x industry average.
TDC’s total revenue for the fiscal third quarter that ended September 30, 2023, increased 5% year-over-year to $438 million. Its non-GAAP net income increased 34.4% year-over-year to $43 million. The company’s non-GAAP operating income rose 16.7% year-over-year to $63 million. Also, its non-GAAP EPS came in at $0.42, representing an increase of 35.5% year-over-year.
Analysts expect TDC’s revenue and EPS for the quarter ending December 31, 2023, to increase 1.6% and 46.2% year-over-year to $459.25 million and $0.51, respectively. It topped the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 30.5% to close the last trading session at $43.34.
TDC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B in Growth and Value. Within the Technology – Services industry, it is ranked first out of 77 stocks. In addition to the ratings stated above, one can access TDC’s Momentum, Stability, and Sentiment ratings here.
TTM Technologies, Inc. (TTMI)
TTMI is a global manufacturer and seller of engineered systems, radio frequency components and, RF microwave/microelectronic assemblies, and printed circuit boards (PCB). It operates in the PCB and RF&S Components segments. The company offers a range of engineered systems, RF and microwave assemblies, HDI PCBs, flexible PCBs, custom assemblies, and system integration, IC substrates, and other components.
On November 1, 2023, TTM announced that it chose New York State for a cutting-edge new greenfield manufacturing facility, set to bring 400 jobs and enhance the domestic microelectronics ecosystem. The new facility will bring disruptive capability for the production of ultra-HDI PCBs supporting national security. It will also support TTM's commitment to sustainability.
In terms of forward EV/Sales, TTMI’s 0.96x is 66.8% lower than the 2.89x industry average. Its 11.18x forward EV/EBIT is 45.4% lower than the 20.46x industry average. Likewise, its 0.71x forward Price/Sales is 75.8% lower than the 2.94x industry average.
For the fiscal third quarter ended October 2, 2023, TTMI’s net sales amounted to $572.58 million. The company’s non-GAAP net income and EPS stood at $44.88 million and $0.43, respectively. Also, its adjusted EBITDA came in at $84.08 million.
Street expects TTMI’s revenue and EPS for the quarter ending March 31, 2024, to increase 3.5% and 59.7% year-over-year to $563.23 million and $0.29, respectively. The company has surpassed the Street EPS estimates in three of the trailing four quarters, which is impressive. Over the past nine months, the stock has gained 23.9% to close the last trading session at $15.55.
TTMI’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, and Sentiment. It is ranked #7 out of 39 stocks in the B-rated Technology – Electronics industry. Beyond what is stated above, we’ve also rated TTMI for Value, Stability, and Quality. Get all TTMI ratings here.
Ceragon Networks Ltd. (CRNT)
Headquartered in Rosh HaAyin, Israel, CRNT provides wireless transport solutions for cellular operators and other wireless service providers. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/ distributed cells, and service provider’s network. It uses microwave and millimeter-wave radio technologies to transfer telecommunication traffic.
On December 5, 2023, CRNT announced the completion of the previously announced acquisition of Siklu, a provider of multi-Gigabit “wireless fiber” connectivity in urban, suburban and rural areas. The acquisition creates a more comprehensive, end-to-end offering ideally targeted to small service providers and private networks worldwide. It will add approximately between $25 million and $29 million in incremental 2024 revenue.
Doron Arazi, CRNT CEO, said “This acquisition is expected to accelerate our growth strategy by expanding our presence with the fastest-growing segments of the market and enhancing our end-to-end solutions to better address the evolving needs of private networks. In addition, I expect that this acquisition will have a positive impact on our gross margins in the near term and our profitability in the intermediate to long term.”
In terms of forward EV/EBITDA, CRNT’s 5.85x is 62.8% lower than the 15.769x industry average. Its 0.56x forward EV/Sales is 80.6% lower than the 2.89x industry average. Likewise, its 0.51x forward Price/Sales is 82.8% lower than the 2.94x industry average.
CRNT’s revenues for the third quarter ended September 30, 2023, increased 10.9% year-over-year to $87.26 million. Its non-GAAP gross profit increased 8.8% over the prior year quarter to $30.42 million. The company’s non-GAAP net income increased 20.4% year-over-year to $4.96 million. Also, its non-GAAP net income per share came in at $0.06, representing an increase of 20% over the prior year quarter.
For the quarter ending December 31, 2024, CRNT’s revenue is expected to increase 14% year-over-year to $86.11 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 25% year-over-year to $0.05. It surpassed consensus EPS estimates in three of the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 25.8% to close the last trading session at $2.05.
It’s no surprise that CRNT has an overall rating of B, which translates to a Buy in our POWR Ratings system.
It has an A grade for Value and Sentiment and a B for Growth. It is ranked #2 out of 46 stocks in the Technology – Communication/Networking industry. Click here to see the other ratings of CRNT for Momentum, Stability, and Quality.
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TDC shares were trading at $43.57 per share on Thursday afternoon, up $0.23 (+0.53%). Year-to-date, TDC has gained 29.44%, versus a 24.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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