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Which Rebounding Tech Stock Has the Most Room to Run?

Story Highlights

Microsoft, Alphabet, and Nvidia are the market’s tech leaders that could help drag the S&P 500 out of the gutter, as investors become less demanding and more accepting of headwind-hit quarters. In this piece, we’ll check in with Wall Street to see which tech darling has the most room to run in the face of a tech sector recovery.

Whether or not we’re at the beginning of a tech-led rebound, the three tech titans outlined in this piece seem like great buys, according to analysts. Let’s use TipRanks’ Comparison Tool to analyze three recovering tech stocks that Wall Street thinks have room to the upside over the coming year.

With the market rally broadening across many sectors, many hope that July’s rally will be more than just another bear market bounce. Indeed, it’s never a good idea to time the market.

These days, many big-tech stocks are fresh off much better than expected second-quarter earnings results. With some positive momentum building behind shares while valuation metrics remain skewed on the low end, it’s not a mystery why Wall Street still views this market’s tech darlings in such high regard.

Microsoft (MSFT)

Microsoft is a tech titan that came up shy with its recent fourth-quarter results. The top and bottom lines came in at the low end of management’s guidance range.

Microsoft’s EPS of $2.23 missed the analyst consensus of $2.29, while revenue came in at an unimpressive $51.9 billion. Despite the rare quarterly miss, the stock shot up following management’s upbeat guidance. Such a rosy outlook helped investors and analysts see beyond the haze of uncertainty up ahead.

Undoubtedly, the latest quarter was weighed down by many transitory issues common to most firms these days. A robust greenback, the effect of the Ukraine-Russia crisis, and supply constraints all dampened the results.

In due time, such headwinds will pass, and Microsoft will likely be right back to its market-beating ways. The company’s cloud strength was also remarkable, with Azure growing 40% year over year, a slight decline from the 46% growth posted in the last quarter.

Management remains upbeat, and I think they’re right to be. Despite this, several Wall Street analysts adjusted their price targets to the downside. The latest price target trim is courtesy of Bernstein, which lowered the price target to $355 from $400.

Though the latest quarter was a mixed bag, investors appear to be paying more merit to guidance. Further, all 29 Wall Street analysts covering the name stand by their Buy recommendations, with the average Microsoft price target of $331.00. That implies 19% upside from current levels.

Alphabet (GOOG)(GOOGL)

Alphabet is another tech leader that picked up traction following the latest round of earnings despite coming up shy of expectations. For the second quarter, Alphabet posted $1.21 in per-share earnings, missing the analyst consensus estimate of $1.27. Various factors, including the strong U.S. dollar, helped dampen the results. Holding up the fort was Alphabet’s ad and cloud businesses.

Apple’s (AAPL) privacy-focused iOS updates have weighed on the ad businesses of social-media firms. Such updates could push advertisers over to Google, which isn’t dependent on tracking users across the web. Despite a softening climate for advertisers, Google saw its ad business grow nearly 12% year-over-year, thanks in part to a 13.5% growth in YouTube.

Looking ahead, I’d be unsurprised if Alphabet takes even more share from ailing social-media companies struggling to cope with Apple’s latest changes.

Google has a wide moat protecting its cash flow stream in the search space. Though the company could feel the heat of declining ad spending as we move into a recession, it’s hard to imagine Google staying down for too long as its smaller ad rivals (especially those in the social space) are brought to their knees.

Even after the sharp bounce off $105 per share, the stock remains cheap at 21.7 times trailing earnings and 5.4 times sales. Wall Street analysts seem to be in agreement, with 28 out of 30 analysts marking the stock as an outperform. The average Google price target of $141.28 suggests 23% upside over the year ahead.

Nvidia (NVDA)

Nvidia is a graphical chip powerhouse that reports second-quarter earnings later this month, on August 24. Gaming and the data center should help power the quarter, while COVID-induced supply challenges and a Russian pullout could continue to weigh.

In any case, Nvidia stock is attempting to stage a comeback after being pummeled 57% from peak to trough. After climbing nearly 24% over the past month, Nvidia stock finds itself down 45% from its all-time high, just north of $333 per share.

The stakes may be high going into Nvidia’s earnings report. Given the optimistic response by investors to big-tech earnings misses, it seems as though Mr. Market is more than willing to give headwind-plagued firms a free pass this time around.

Though coming quarters could prove choppy, Nvidia is on the right side of so many secular trends in tech. The company will continue to benefit from the rise of AI, the metaverse, the data center, and gaming. With potent new chips for the data center (the Grace superchip), the company could easily leave its rivals behind and widen the performance gap.

At just shy of 50 times trailing earnings, Nvidia stock isn’t cheap. However, it doesn’t deserve to trade at a multiple more in line with its less-stellar peers. Its leading chips have applications in many booming industries, which should support high double-digit growth for some time.

Despite the more than 55% crash in the stock, Wall Street analysts remain overwhelmingly bullish. Of the 30 analysts covering the name, there are 25 Buys and five Holds. The average Nvidia price target of $245.55 implies a 33.2% gain for the year ahead. The Street-high price target comes from Hans Mosesmann of Rosenblatt Securities, who sees Nvidia shares surging 116.9% to his $400 price target.

Analysts Expect the Most Upside from NVDA

Betting against the market’s tech leaders is never a good idea. They’re starting to gain traction again. With multiples still relatively depressed, I think there’s never been a better time to top up, even as the coming economic slowdown entices analysts to continue lowering the bar. At this juncture, analysts seem to think Nvidia stock has the most room to the upside.

The 33.2% gain is the average upside projected by analysts, with a whopping 116.9% gain expected by the most bullish analyst on the Street.

Disclosure

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