Tech Titans 2023: Your Guide to the Top High-Potential Stocks
July 4, 2023
In 2023, the technology sector is proving to be the market’s powerhouse. An impressive collection of the top 10 tech stocks returned a cumulative 40% within the year, prompting the creation of a new set of 10 tech stocks to watch for the latter half of 2023. The primary catalysts for this surge include investors leaning towards major tech corporations as a shield from inflation and interest rate instability, cost reduction strategies, and the ongoing AI revolution.
While mega-cap tech stocks currently dominate the industry, numerous smaller tech firms promise robust future growth, remarkable profitability, and trade at sizable discounts compared to the sector. Each recommended stock carries a ‘strong buy’ rating and showcases exceptional fundamentals, bullish momentum, and beneficial factors that boost investor sentiment amid an improving economic climate.
2023: The Year Tech Leads the Market Tech stocks are establishing a positive trajectory in 2023, following a challenging 2022. Despite experiencing six consecutive quarters of decline, FAANG stocks remain popular among investors, exceeding expectations with Apple (AAPL) surging nearly 50% year-to-date (YTD), closely followed by Amazon (AMZN) and Netflix (NFLX).
As cited in a Bloomberg interview, Chief Market Analyst Wayne Kaufman noted, “Following the bear market, there’s a noticeable resurgence of investors. Apple is one stock they feel secure owning, regardless of its market direction, confident of its long-term profitability.”
Unveiling Underappreciated Treasures: Top 10 Tech Stocks Poised for Remarkable Growth in Second Half of 2023
At the beginning of 2023, a list of top 10 tech stocks was published. The primary drivers of the rally included investors seeking refuge in major tech stocks due to inflation and interest rate volatility, cost-saving measures, and the burgeoning AI revolution. These selected stocks have since collectively returned 40% YTD. Though these stocks may be riding the wave of the mega techs’ momentum, most are underappreciated tech stocks that are undervalued and selected based on strong collective metrics, making them desirable additions to any portfolio.
Situations like the AI boom, semiconductor trends, a softening labor market, and an economic downturn have presented unique opportunities to invest in smaller tech stocks at discounted valuations, in hopes of price appreciation. As a result, ten new tech stocks are suggested for the latter half of 2023.
Each of these recommended stocks has maintained a ‘strong buy’ rating over the past months and displayed significant price performance over six-month, nine-month, and one-year periods. Even though the Federal Reserve decided to postpone the latest rate increase, inflation and interest rates remain concerning, posing potential short-term challenges for the industry. As market optimism elevates the sector, thoughtful stock selection becomes crucial. Therefore, 10 of Seeking Alpha’s top-ranked quant stocks are highlighted for potential investment in the latter half of 2023.
Top 10 Tech Stocks to Invest In
The upsurge of artificial intelligence, with its promise to both enhance and substitute human capabilities, has propelled numerous industries to innovate their products and services for potential future gains. The selected ten tech picks, each boasting market capitalizations exceeding $700M, offer diversity and distinguish themselves from the typical FAANG stocks. These options are underpinned by exceptional fundamentals, propelled by robust growth catalysts, and are framed within impressive valuation models. As the evergreen tech sector is ripe for promising upside, the focus here is on ten undervalued tech stocks poised to flourish this summer.
1. Opera Limited: A Tech Powerhouse Worth Your Attention (NASDAQ:OPRA) Market Capitalization: $1.55B
Get ready for a gaming revolution with Opera Limited, a leading application software company redefining browser technology. Its offering sets high standards with unparalleled security, privacy, and adaptability for gaming, news consumption, and more.
- This debt-free enterprise, known for its accelerating margins and rapid growth, outperformed both top-and-bottom-line earnings expectations in Q1 2023.
- The revenue for the first quarter touched $87.1M, marking a 22% year-over-year increase, while an EPS of $0.17 exceeded forecasts by $0.03.
- An adjusted EBITDA of $21.7M, equivalent to a 25% margin, and staggering year-over-year EBIT growth presenting a +17,400% differential to the sector, have led to a swift increase in the user base.
The company’s partnership with YouTube for an influencer campaign, along with the introduction of features such as live football scoring and credit funds, has attracted over 50 million users in less than six months, thus underlining its powerful distribution capabilities.
Advertising revenue comprises 56% of Opera’s total income, a testament to the organic growth in monthly active users, leading the company to raise its FY23 Guidance. Building on this success, Opera Limited is leveraging the rise of artificial intelligence as a key business driver, a point emphasized by OPRA Co-CEO Song Lin:
“So far this year, the integration of AI services has emerged as a top priority for numerous popular consumer apps. We’ve positioned ourselves to be among the frontrunners in integrating browsers and AI. After forming a partnership with OpenAI, Opera became one of the first browsers to support popular services such as Chat GPT directly in our browser sidebar, along with offering innovative AI prompts.“
With a robust balance sheet, accelerated growth, and proven profitability, Opera Limited presents a compelling investment case. The company is currently experiencing bullish momentum, with Wall Street analysts revising their estimates upwards. Despite this, the stock continues to trade at a discount. Opera Limited’s forward Price/Book ratio is 2.04x, compared to the sector average of 4.00x, and its overall valuation grade stands at a respectable C+. Adding this ‘strong buy’ contender to an investment portfolio would indeed be a strategic move.
2. Bel Fuse Inc.: A Hidden Gem in the Tech Sector (NASDAQ:BELFB) Market Capitalization: $708.37M
- Quant Rating: Strong Buy
- Sector Ranking (as of 6/26/23): 5 out of 584
- Industry Ranking (as of 6/26/23): 1 out of 23
Bel Fuse Inc., a seasoned electrical component company, boasts over 70 years of experience. The company is renowned for its design and manufacture of products that power, protect, and connect electronic circuits. In an era dominated by technology, Bel Fuse’s proven track record in launching, marketing, and selling products across a variety of sectors, including networking, aerospace, telecommunications, computing, and military, sets it apart. This small-cap company, having consistently beaten top and bottom line earnings predictions eight times in a row, has secured a well-deserved spot in the Russell 3000.
Bel Fuse’s earnings for Q1 were the best in its history, with an EPS of $1.35, exceeding expectations by $0.55. Revenues reached $172.34M, marking a 26% increase year-over-year. These robust results have yielded shareholder returns of more than 155% over the past year. Despite economic challenges, Bel Fuse’s diversified offerings have facilitated the continued payment of a modest, consistent dividend, which is reflected in an attractive dividend scorecard. Bel Fuse is on an upward trajectory, with a year-to-date (YTD) price performance of +61% and a remarkable +228% over the last year, significantly outpacing its peers.
Even though Bel Fuse is trading close to its 52-week high, the company’s valuation metrics remain significantly discounted. This is evident from its forward P/E ratio of 12.06x, substantially lower than the sector’s 24.83x, and a trailing PEG ratio offering more than an 88% discount compared to the sector. Therefore, BELFB emerges as an attractive ‘strong buy’ tech stock option for an investment portfolio. Stay tuned for the next pick, which is the only mega tech stock on this list.
3. Salesforce: The Tech Titan Primed for the AI Revolution (NYSE:CRM) Market Capitalization: $204.63B
- Quant Rating: Strong Buy
- Sector Ranking (as of 6/26/23): 10 out of 584
- Industry Ranking (as of 6/26/23): 6 out of 205
Holding the title as the world’s leading CRM platform and a trailblazer in Software as a Service (SaaS), Salesforce, Inc. has been seamlessly connecting businesses with its cutting-edge technology for many decades. This company stands as the sole mega tech stock on our list and is recognized as a disruptive software innovator, well-prepared to leverage opportunities in the generative AI trend with its innovative AI Cloud.
After bouncing back from its 52-week low last December, Salesforce’s shares have surged 55% year-to-date (YTD) and registered an increase of 20% over the past year. While most big tech stocks carry premium valuations, Salesforce stands as a relatively undervalued gem. This is substantiated by a forward PEG ratio presenting a 35% difference compared to the sector average and a forward Price/Book ratio of 3.31x, contrasting with the sector’s 4.00x, thereby leaving ample room for potential growth as the tech sector rebounds.
With a stellar 92% retention rate, Salesforce projects a revenue growth rate of 13%, outpacing the sector’s 9%. Moreover, it predicts an EPS growth rate of 23.5%, more than doubling the sector’s 9.9%. Following an outstanding Q1 earnings performance, with an EPS of $1.69, surpassing expectations by $0.08, and revenue of $8.25B that exceeded year-on-year estimates by over 11%, a total of 41 Wall Street analysts have revised their estimates upwards in the past 90 days. Combining high-profit margins with robust cash flow from operations, Salesforce establishes its place as a formidable force in the tech industry.
4. Extreme Networks, Inc. (NASDAQ:EXTR) Market Capitalization: $3.01B
- Quant Rating: Strong Buy
- Quant Sector Ranking (as of 6/26/23): 13 out of 584
- Quant Industry Ranking (as of 6/26/23): 1 out of 49
With a new CFO at the helm, Extreme Networks, Inc., a low-debt communications equipment company, is primed for significant growth. A leading force in the cloud networking market, the company designs and develops wired and wireless infrastructure to enhance customer experiences, reduce risks, and spur operational efficiencies and top-line growth.
Extreme Networks has consistently exceeded earnings expectations, with its Q3 EPS of $0.29 surpassing the estimate by $0.03 and its revenue of $332.51M reflecting a year-over-year increase of 16%. These strong results have led six analysts to revise their estimates upwards over the past 90 days.
The company’s record-breaking FQ3’23 results showcased a 16% Y/Y revenue growth and a record Non-GAAP net income of $39M. Additionally, the firm reported a nearly 30% Y/Y increase in new SaaS subscription bookings, unprecedented profitability, and substantial cash generation. With a Non-GAAP operating margin of 16%, an adjusted EBITDA of $57M, and Net Debt of $34M (a 77% Y/Y reduction), Extreme Networks has repurchased 1.4M shares for $25M.
Thanks to bullish momentum, the stock has soared to near its 52-week high of $25.13/share, delivering a 143% increase over the past year and significantly outperforming its sector peers. Given its forward PEG ratio, which is 39% lower than the sector average, and discounted EV/Sales ratios, Extreme Networks offers a compelling investment opportunity characterized by substantial growth, profitability, and value.
5. InterDigital, Inc. (NASDAQ:IDCC) Market Capitalization: $2.44B
- Quant Rating: Strong Buy
- Quant Sector Ranking (as of 6/26/23): 17 out of 584
- Quant Industry Ranking (as of 6/26/23): 7 out of 205
Experiencing a year-to-date surge of over 60%, backed by impressive first-quarter earnings, InterDigital Inc., along with its subsidiaries, is making substantial progress in wireless communications. The prospect of licensing agreements with Lenovo, Oppo, and Vivo further propels its robust customer pipeline.
This application software company, with a history spanning over five decades, continues to lead the industry through continuous innovation and research. Following successive earnings beats, Bank of America upgraded its stock rating. Recently, InterDigital entered a patent agreement with the Japanese electronics and components giant, Alps Alpine. In a press release, Eeva Hakoranta, InterDigital’s Chief Licensing Officer, stated:
“Our latest agreement demonstrates how our innovative solutions are applied across a broad range of devices. We are proud of our extensive research in the video domain, which has culminated in a strong portfolio of assets in HEVC and other leading codecs. We are delighted to have finalized this deal and are looking forward to a productive relationship with Alps Alpine.”
InterDigital’s first quarter earnings per share (EPS) in 2023 were $3.58, exceeding estimates by $2.99, and its revenue of $202.37M represented an almost 100% year-on-year increase. These outstanding results prompted four analysts to revise their estimates upward. In April alone, InterDigital repurchased shares worth $24.7M. With a diverse patent portfolio exceeding 28,000 patents and applications, this undervalued pioneer continues to grow exponentially. The stock, currently trading near its 52-week high, has significant upside potential, supported by buybacks, a trailing PEG ratio almost 87% less than the sector average, and P/E ratios trading at more than a 40% discount. InterDigital, Inc., staying true to its mission of powering extraordinary experiences, merits serious consideration for portfolio inclusion.
6. JFrog Ltd. (NASDAQ: FROG) Market Value: $2.70 Billion
- Quantitative Analysis Rating: Highly Recommended for Purchase
- Quantitative Sector Position as of June 26, 2023: 22nd out of 584
- Quantitative Industry Position as of June 26, 2023: 1st out of 47
JFrog Ltd., a leader in software supply chain platforms, excels at structuring, developing, and deploying corporate ecosystems focused on automation, scale, and efficiency. Despite a modest valuation grade of D+, indicative of a premium price point, the company showcases impressive growth, classified as A+. This is particularly evident in its favorable forward PEG ratio of 1.06x, markedly lower than the sector average of 1.77x. JFrog also reports a year-on-year revenue growth and forward revenue growth that is a substantial 170% higher than its sector.
JFrog’s first-quarter earnings exceeded expectations on both the top and bottom lines. This includes an EPS of $0.06, surpassing forecasts by $0.03, and revenues of $79.82 million, outperforming predictions by $1.43 million. This commendable performance was driven by factors such as increased cloud service usage, a pay-as-you-go system, a rising number of annual SaaS customers, and an overall increase in customer ARR.
Despite a challenging macroeconomic environment, JFrog is committed to the future. With a transition from self-managed subscriptions to hybrid or multi-cloud platforms underway, the company is gaining momentum. This is underscored by 12 analysts who have revised their estimates upward over the past 90 days. Looking ahead, JFrog anticipates its FY 2023 guidance to significantly surpass consensus estimates. Consequently, considering JFrog as a potent addition to your portfolio could potentially yield substantial returns through 2027.
7. ON Semiconductor Corporation (NASDAQ:ON) Market Value: $37.80 Billion
- Quantitative Analysis Rating: Highly Recommended for Purchase
- Quantitative Sector Position as of June 26, 2023: 18th out of 584
- Quantitative Industry Position as of June 26, 2023: 2nd out of 68
ON Semiconductor Corporation stands as a top contender in the technology sector, particularly in the field of semiconductors, a vital component in a myriad of indispensable products. By advancing its long-term financial targets, Onsemi is carving out a path for sophisticated, intelligent tech across the automotive, industrial, and 5G cloud power sectors.
Despite its strong fundamentals, consistent earnings growth, and notable EPS, Onsemi is currently trading at a discount. However, it’s worth noting its impressive year-to-date (YTD) price rise of 44% and a one-year price increase of 63%. Onsemi’s forward P/E ratio stands 21.56% lower than the sector average, with its EV/EBIT and EV/EBITDA indicators reflecting substantial double-digit discounts.
Thanks to robust demand in the semiconductor sector, ON is well-positioned to capitalize on fast-growing market trends. With more than $17 billion committed in long-term agreements, ON has strategically honed in on differentiated chips to benefit from the growth in data center applications and diverse product offerings, including electric vehicles (EVs).
Following consistent earnings beats, 26 Wall Street analysts have upgraded their estimates in the last 90 days, with no downward revisions, after another quarter of exceeding expectations. With a Q1 revenue of $1.96 billion, surpassing estimates by $34.49 million, an EPS of $1.19 beating expectations by $0.11, and a gross margin exceeding 45%, ON’s automotive revenue experienced a year-over-year increase of 38%.
During the Q1 2023 Earnings Call, Onsemi President & CEO Hassane El-Khoury emphasized ON’s continual overachievement:
“ONsemi was recently honored with the 2022 Supplier of the Year Award from Hyundai Motor Group, acknowledging ON Semi as a reliable provider of key technology within its ecosystem, offering supply chain resilience and sustainable manufacturing. Customers also view us as a strategic partner that delivers high value throughout the entire design cycle, affording them a competitive edge over their peers.”
Given the ongoing advancements in technology and semiconductors, ON stands as a compelling large-cap stock worth considering in the context of a potential technology boom through 2023. Now might be the perfect time to consider this highly recommended purchase.
8. Harmonic Inc. (NASDAQ:HLIT) Market Value: $1.85 Billion
- Quantitative Analysis Rating: Highly Recommended for Purchase
- Quantitative Sector Position as of June 26, 2023: 48th out of 584
- Quantitative Industry Position as of June 26, 2023: 3rd out of 49
Despite experiencing a downturn along with the tech sector last year, the Communications Sector (XLC) has demonstrated remarkable momentum during its recovery this year. Harmonic Inc., together with its subsidiaries, supplies video delivery software, products, and services to the thriving streaming industry.
Given the dominance of streaming as the primary form of TV consumption in the U.S., as per Nielsen’s report in December, HLIT has capitalized on this trend, posting a substantial +88% growth over the past year.
Harmonic, a global streaming service provider catering to over 5,000 media companies, leverages its cutting-edge technology to generate considerable profit and growth, as reflected in its consistently strong earnings reports.
Even though there was a slight Q1 2023 revenue miss of $0.26 million, HLIT reported an EPS of $0.12, exceeding predictions by $0.03, and realized an adjusted EBITDA margin of 14%. Furthermore, Harmonic’s Broadband segment recorded a 23% increase in year-over-year revenue, and its Video SaaS revenue surged by an impressive +72% during the same period.
The strong market demand has led to multi-year contracts for CableOS and Video SaaS in Q1, cementing HLIT’s competitive advantage and highlighting its potential to fulfill annual results and growth ambitions to its investors. The company’s total gross margins have surged by approximately 54%. Harmonic’s appointment of a new CFO signals the small-cap tech company’s ongoing commitment to outperformance.
I last evaluated this stock in November, and it has since witnessed an 18% growth. While the stock has a C+ valuation grade indicating a need for caution when investing at its current near 52-week high price, Harmonic’s strong momentum, growth path, and overall factor grades harmonize well with the expectations of many investors.
9. Photronics, Inc. (NASDAQ:PLAB) Market Capitalization: $1.44 Billion
- Quantitative Rating: Highly Recommended
- Quant Sector Standing (as of 6/26/23): 23rd out of 584
- Quant Industry Standing (as of 6/26/23): 3rd out of 29
Photronics, Inc., a significant player in the semiconductor industry, consistently breaks revenue records. I highlighted the company’s potential in an article titled “3 Best Tech Stocks for Upside” one year ago. Since then, the firm’s stock value has surged by nearly 20%, demonstrating its robust fundamentals and superior quantitative ratings, which include one of the highest factor grades among my ten selections.
Factor Grades evaluate investment attributes relative to their sectors
Notably, Photronics, Inc. (PLAB) showcases strong Growth, Profitability, Momentum, and Revisions Grades. This signifies its status as one of the sector’s most profitable and fundamentally robust companies. PLAB’s photomasks, integral to the production of integrated circuits or “chips” in the semiconductor industry, employ cutting-edge technologies. The consistent demand for semiconductor companies, even during downturns in the tech sector due to geopolitical tensions, inflation, and interest rate fluctuations, sets PLAB apart.
Moreover, Photronics, along with its subsidiaries, holds global leadership in photomasks. Benefiting from a quarter-over-quarter $24 million FX tailwind, a robust balance sheet, and sustained demand, PLAB’s Q2 earnings per share (EPS) of $0.54 exceeded forecasts by $0.10. Meanwhile, its revenue of $229.31 million surpassed year-over-year expectations by over 12%. Despite a challenging market landscape, PLAB stocks offer exceptional margins and steady growth, capitalizing on market expansion trends.
Over recent years, semiconductors have consistently outperformed many speculative tech stocks. Photronics continues to demonstrate bullish momentum while trading at a considerable discount.
Per the above valuation grades, PLAB’s forward price-to-earnings (P/E) ratio of 11.88x represents a 52% discount compared to its sector. Its price/earnings-to-growth (PEG) ratio (TTM) of 0.29x shows a -58.22% difference relative to the sector average. With strong free cash flow and increasing pricing power, the company is well-positioned to invest in growth. Thus, this stock should be considered for potential portfolio enhancement.