As the September sell-off worsens in its final week, value investors may wish to check in with some of the underrated tech stocks that may have been unfairly punished. Of course, this year has been all about the mega-cap tech titans, or the “Magnificent Seven,” which have done most of the lifting for the S&P 500 (SPX). Still, investors should be willing to consider names outside of the group — such as NOW, SPOT, and GRAB — for a shot at a better risk/reward and potentially greater upside.
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Therefore, in this piece, we’ll use TipRanks’ Comparison Tool to check in with three Strong-Buy-rated tech plays that analysts believe have double-digit upside potential over the next year.
ServiceNow (NASDAQ:NOW)
A strong case could be made that ServiceNow is one of the best high-tech growth companies outside of the Magnificent Seven basket. The IT service software company is led by legendary CEO Bill McDermott and seems to be betting big on the rise of artificial intelligence (AI).
Sure, everybody wants to beef up their AI talents these days. However, I think ServiceNow stands out as one of the bigger beneficiaries in generative AI’s earlier days. In 2024, McDermott sees a resurgence in IT spending after a year of broad cuts. Add AI into the equation, and ServiceNow stock looks like it has a clear path to new highs. For this reason, I’m staying bullish, like all but one of the 26 Wall Street analysts covering the firm.
It’ll be interesting to see how ServiceNow monetizes its new generative AI offerings. September has been a pretty big month for AI announcements for ServiceNow, with the recent Now Platform Vancouver release highlighting some impressive capabilities, including generative AI text-to-code and various test automation features.
At 45.7 times forward price-to-earnings (P/E), the stock goes for a premium over the software application industry average of 30.4. That said, I think the premium is worth paying, given the firm’s generative AI monetization potential in the enterprise. Wall Street seems to agree.
What is the Price Target of NOW Stock?
ServiceNow is a Strong Buy, with 25 Buys and one Hold. The average NOW stock price target of $644.00 entails 18.3% upside potential.
Spotify (NASDAQ:SPOT)
It’s been a great turnaround year for music streamer Spotify, which is now up over 89% year-to-date. Despite the blistering run, though, shares are still off more than 57% from their 2021 all-time highs. For now, they seem out of reach, as competition in the space stays fierce, but still, the past month of sluggishness hasn’t really spread to SPOT stock (up 11% over the past month).
With new AI features being sprinkled on top (think the new AI language translator), Spotify stands out as a tech firm with overlooked AI upside potential. After a horrific 2022 valuation reset, I find it hard to be anything but bullish.
Generative AI may be the driver of Spotify’s uphill comeback. From podcast translations to an AI-powered DJ and maybe even AI-generated tracks, Spotify stands out as a potential AI company that just so happens to stream music. Though it’s hard to see what the longer-term roadmap looks like, I think the $30.3 billion company is intriguing at just 2.3 times price-to-sales (P/S), well below the interest content & information industry average of 5.4 times.
What is the Price Target of SPOT Stock?
Spotify is a Strong Buy on TipRanks, with 18 Buys and six Holds. The average SPOT stock price target of $178.83 implies 17.4% upside potential.
Grab Holdings (NASDAQ:GRAB)
Grab is a ride-hailing and food-delivery app that’s pretty much the Uber (NASDAQ:UBER) of the Southeast Asian region. The stock collapsed over the past two years, shedding more than 85% from peak to trough.
GRAB, which trades at just $3 and change per share, is not for the faint of heart. However, the stock has been a target of big-name hedge funds, including Tiger Global, which recently hiked its stake by 23.4 million shares as of the latest reported quarter. Though Tiger is in a bit of a slump, I have to be bullish on GRAB stock as shares look to turn a corner after a forgettable year.
Just a few months ago, Grab laid off around 1,000 employees (around 11% of the workforce) as it joined the cost-cutting bandwagon alongside most other tech firms this year. The company is getting a better hold on its expenses and should be able to follow in the footsteps of Uber as it aims to jolt its profitability prospects.
Grab CFO Peter Oey expects sluggish delivery numbers to “be stronger” in the second half. I think that’s a big vote of confidence for a firm that may be about to shift gears higher after last year’s fall.
What is the Price Target of GRAB Stock?
Grab is a Strong Buy on TipRanks with 11 Buys and one Hold rating assigned by analysts in the past three months. The average GRAB stock price target of $4.77 implies a 40.3% gain from here.
Conclusion
The magnificence of the Magnificent Seven could spread to other corners of tech going into the final quarter of 2023. Of the trio in this piece, analysts expect the most upside (40.3%) from GRAB stock. Given this, it may be time to grab onto a few shares while they’re down and out.
