Yahoo Finance 3 Stocks to Buy from the Prospering Technology Services Market
The technology services sector has witnessed robust growth since the pandemic, fueled by the rapid adoption of remote work, accelerating the global digital transition. Technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) have driven industry expansion. Also, increased concerns about data security have acted as a catalyst for industry growth.
Palantir Technologies PLTR, DocuSign DOCU and Duolingo DUOL are poised to benefit from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers and data acquisition and analysis systems. This industry caters to consumer and business markets and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions and technology-enabled financial services for consumers and small business owners.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry has been gaining traction in the past year thanks to technological advancements and the onset of remote work. Revenues, income and cash flows have been growing in the past year, aiding many industry players in paying out stable dividends.
Cloud Computing Gains Traction: Per a report by Grand View Research, the global cloud computing market was valued at USD 483.98 billion in 2022 and is expected to witness a Compound Annual Growth Rate (CAGR) of 14.1% from 2023 to 2030. Factors driving this growth include the cloud's ability to enhance business performance, increasing demand for hybrid and Omni-cloud systems and pay-as-you-go models. Government efforts to safeguard data and the adoption of hybrid work models post the COVID-19 pandemic are also contributing. However, data security concerns constrain growth, while large enterprises embrace the cloud to reduce costs and manage data efficiently, especially with pay-as-you-go models. Large businesses are rapidly adopting cloud services due to their on-demand availability.
Technological Advancement Take Centre Stage: The global shift towards digitization creates opportunities in various markets, including 5G, blockchain, and artificial intelligence (AI). The United States, a significant player in the IT sector, is positioned for growth owing to the widespread adoption of smart technologies and increased investments in security. Companies increasingly adopt AI, ML, blockchain and data science to gain a competitive advantage. According to Statista, the worldwide artificial intelligence market was worth $142.3 billion in 2022 and is anticipated to reach a staggering $1.85 trillion by 2030. This indicates a substantial CAGR of 41.75% from 2022 to 2030. ML is anticipated to experience significant growth, increasing from $140 billion to $2 trillion by 2030.
Cybersecurity, talk of the town: The rapid adoption of technology services has brought about some negative consequences. The FBI, for instance, has reported a 300% surge in cybersecurity cases during the pandemic. Nevertheless, the industry benefits from the growing demand for data security and privacy protection solutions. The increasing frequency of cyberattacks and associated security threats is anticipated to sustain the industry's growth. Per Statista, Revenue is expected to record an annual growth rate (CAGR 2023-2028) of 10.48%, resulting in a market volume of $273.60 billion by 2028. According to Statista, the IT Services market is projected to reach $1,204 billion in 2023, with the market volume expected to reach $1,570 billion. This suggests a CAGR (2023-2027) of 6.86%.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #62. This rank places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and current valuation.
Industry Beats Sector and S&P 500
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 51.9% over this period compared with a 23.6% rise of the broader sector and a 25.3% increase of the Zacks S&P 500 composite.
One-Year Price Performance
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing Technology Services stocks, the industry is currently trading at 67.1X compared with the S&P 500’s 13.86X and the sector’s 27.61X.
Over the past five years, the industry has traded as high as 72.18X, as low as 19.82X and at the median of 50.24X, as the charts below show.
EV-to-EBITDA
3 Technology Stock Choices
We are presenting four technology stocks expected to reap the benefits of a growing market. All the suggested stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Duolingo is a popular language-learning platform offering interactive lessons in numerous languages. Utilizing gamified techniques, it engages users with exercises, quizzes, and challenges. Its user-friendly interface makes language acquisition enjoyable and accessible for learners worldwide.
The Zacks Consensus Estimate of the company’s revenues is expected to grow 42.6% for the year 2023 to $527.1 million. Earnings are expected to record a more than 100% increase, the Zacks Consensus Estimate of which is pegged at 25 cents for 2023. The Zacks Consensus mark for full-year earnings has been revised favorably by more than 100% in the last 60 days.
DUOL has grown 195.7% in the past year.
Price & Consensus: DUOL
Palantir Technologies is a data analytics and software company founded in 2003. Known for its advanced data integration and analysis platforms, Palantir serves the government, financial, and healthcare sectors. Its software facilitates data-driven decision-making and is recognized for its role in national security and intelligence applications.
The Zacks Consensus Estimate of the company’s revenues is expected to grow 16.5% for the year 2023 to $2.22 billion. Earnings are expected to record a more than 100% increase, the Zacks Consensus Estimate of which is pegged at 25 cents for 2023. The Zacks Consensus mark for full-year earnings has been revised favorably by 4.2% in the last 60 days.
PLTR has grown 152% in the past year.
Price & Consensus: PLTR
DocuSign is a leading electronic signature and digital transaction management platform. It enables users to securely sign, send, and manage documents digitally, streamlining workflows and reducing paper-based processes. Trusted for its security and convenience, DocuSign revolutionizes document transactions globally.
The Zacks Consensus Estimate of the company’s revenues is expected to grow 9.2% for 2023 to $2.75 billion. Earnings are expected to record a 41.4% increase, the Zacks Consensus Estimate of which is pegged at $2.87 for 2023. The Zacks Consensus mark for 2023 earnings has been positively revised by 9.5% in the past 60 days.
DOCU has grown 1.3% in the past year.
Price & Consensus: DOCU
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Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report
DocuSign (DOCU) : Free Stock Analysis Report
Duolingo, Inc. (DUOL) : Free Stock Analysis Report
