The technology sector has taken a huge and painful hit over the past few quarters. Tech, once again, led the markets lower, with the Nasdaq 100 amplifying daily losses in the S&P 500. In this article, I used TipRanks’ Comparison Tool to look at three large-cap tech stocks — NVDA, CRM, and ADBE — that may have the means to march higher from the market’s latest mini-rut. While I would not fight the Fed, I would give the following Strong-Buy-rated tech stars a glance as the market recovery pulls the brakes.
Indeed, we’ve all been through this one before. Higher growth and higher valuation metrics are viewed in a more negative light, with rates rising. Rates on the 10-year Treasury note jumped quite a bit yesterday ahead of the Jackson Hole meeting. Investors no longer expect the hint of dovishness going into the meeting, which is why best-in-breed tech stocks may be a great option to consider following the latest pause in the market rally.
Many will doubt the sustainability of the lovely summer rally we’ve had. In any case, you cannot go wrong with the following Strong Buy-rated tech stocks that are well-equipped to continue powering forward despite higher rates and intensifying macro storm clouds.
Nvidia (NVDA)
Nvidia is a semiconductor powerhouse that may very well be the most exciting in the industry. Graphical hardware is the new frontier, with the metaverse and hyper-realistic video games on the horizon. It’s not just good-looking games where Nvidia could make a splash, though. Its processing power is enough to unlock the next generation of AI and other intriguing technologies.
With such a large and growing total addressable market, it’s hard not to remain excited, even as tech becomes a bit of a wreck.
Having a large total addressable market is fine and dandy, but you’ve got to have a management team capable of making the most of industry opportunities. With CEO Jensen Huang continuing to impress, I view Nvidia as a company that can show that it’s worth a premium, even as rates rise and premier-valued tech stocks are no longer in demand.
Federal Reserve fears may drag NVDA stock lower over the near term. That said, Nvidia is ready to move on from the latest gaming slump as it looks to raise the bar for performance. Further, 2023 is a year that could hold a recession, but it’s also one where the metaverse adoption could begin to take off. Once the demand for graphical hardware picks up again, Nvidia will be tough to stop in its tracks.
The stock trades at 45.1x trailing earnings. That’s a high price to pay for a chip stock going into a downturn. Clearly, there’s still a lot of optimism baked in. Regardless, Nvidia’s pace of innovation is unlikely to slow.
Wall Street is a fan of Nvidia, and it’s easy to see why. It’s a best-in-breed company that can take share with its top-of-the-line offerings, and, of course, there are strong secular tailwinds. With 23 Buys and 7 Holds, Nvidia comes in as a Strong Buy. The average NVDA stock price target is $215.18, implying ~32% upside potential.
Salesforce (CRM)
Salesforce is an enterprise cloud kingpin, but shares have lost their way of late. CEO Marc Benioff has found a way to continue delivering exceptional quarterly results, a trend unlikely to die anytime soon.
A recession could weigh on IT spending. However, there’s no evidence of a drastic downturn in Salesforce’s results. Benioff views its business as resilient in the face of a recession. After a solid first quarter, I think it’s hard to argue with the man. The digital transformation is ongoing, and a recession seems unlikely to stop it, given the value and cost savings associated with it.
Salesforce stock may not be recession-resilient, but it’s probably mildly recession-resilient. The company may have paid up for Slack Technologies, but it’s a strong foundation that makes Salesforce the king of work.
With exceptional stewardship and a knack for effective integration of deals (the firm recently bought Troops.ai to beef up Slack), investors are in very good hands as the lights go out on the tech scene.
Down around 47% from its high, I think CRM stock has been unfairly punished. Yes, the multiple is rich (175.6x trailing earnings), but let’s be frank; it doesn’t tell the whole story. Salesforce is fighting to improve its margins, and with that will come a steady jolt to earnings, all while sales growth remains elevated.
Finally, Salesforce is a behemoth that I think could take meaningful share away from other players in customer-relationship management (CRM). It’s a cloud pioneer, and it’s getting stronger every quarter. Though coming quarters may be weighed down by macro events, I do expect Salesforce will be among the first tech firms to rocket higher once volatility dies down and the new bull roars.
Wall Street loves Salesforce, with 27 Buys, four Holds, and one Sell. The 37% implied upside potential, based on CRM’s average price target of $227.67, is also relatively high for the Strong-Buy-rated tech titan.
Adobe (ADBE)
Adobe is a creativity and enterprise software company that’s down more than 45% from its high. Like Salesforce, Adobe has a strong presence in the cloud, with a growing lineup of intriguing offerings for digital marketers and advertisers.
Though Adobe clocked in decent Q2 results, beating expectations by just pennies, the full-year outlook is discouraging. Many macro headwinds could weigh down year-end results. However, I think it’s a mistake to bet against CEO Shantanu Narayen. He’s a great manager that can steady the ship amid increased choppiness.
Looking way ahead, I’d look for Adobe to have the tools for developers to create the digital worlds of tomorrow. Indeed, the creative cloud may be a preferred choice for those looking to create the digital experiences of tomorrow. Though metaverse hype has died down, one should not discount Adobe’s role in the future digital worlds. Arguably, the metaverse is the ultimate medium to express creativity.
The firm’s Substance 3D tool got some considerable updates in June. With more innovation to come, Adobe strikes me as a must-own in its moment of pain.
At 39.4 times trailing earnings, ADBE stock is still pricier than the market. Given its innovative talent, it deserves to be. Wall Street seems to agree, with a Strong Buy rating based on 17 Buys and just four Holds. However, ADBE’s average price forecast of $458.67 implies just 11.5% upside potential, much less than the aforementioned stocks.
Conclusion: Analysts are Most Bullish on Salesforce Stock
There you have it. Three tech stocks that are down, but not out, according to Wall Street. Of the three stocks, Salesforce seems to have the most upside potential in the next year. Count me in, I’m a big fan of Salesforce going into its coming quarter.
