Most of the tech companies that saw their stocks fall in 2022 deserved it. Salesforce (NYSE:CRM) became complacent. Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) over-hired. Meta Platforms (NASDAQ:META) wasted money on a laughable version of the metaverse. But other companies just saw growing markets slow down. This list is for today’s undervalued tech stocks.
There’s a difference between problems caused by management and market patterns. Tech markets always rise and fall as innovation becomes established and the business cycle pauses for a breath. Yesterday’s wow becomes today’s yawn and franchises can disappear, as in the case of Zoom (NASDAQ:ZM). It’s easy for managers to turn inward and fail to see around corners.
The best investments are companies that can get across the chasm and not deviate. They adjust to the waters, keep spending on tomorrow and get ready for when the tide comes back in. When these kinds of tech stocks become cheap, a patient investor buys them up.
That’s what this article is about: some of the best undervalued tech stocks. These companies remain profitable, but also essential. And one may just be on the verge of the next big thing.
Undervalued Tech Stocks: Micron Technology (MU)
Last year was horrible for tech stocks. It should also have been horrible for Micron Technology (NASDAQ:MU), a leading U.S. maker of memory chips. It wasn’t.
MU stock is down more than 25% over the last year, but the company knows how to adjust. The November quarter saw a loss of $195 million, or 18 cents per share. The current quarter looks worse, with analyst foreseeing revenue of $3.78 billion and a loss of 62 cents per share.
But beating market returns means buying low and selling high. That means today is a good time to reconsider Micron. Every past fall in MU stock has led to higher highs. At the bottom of the 2008 financial crisis, Micron cost under $3 per share. Now it’s $62.
CEO Sanjay Mehrotra has been riding the waves of memory’s rise and fall for years. He helped found SanDisk and sold it to Western Digital (NASDAQ:WDC) before joining Micron. Mehrotra knows that the last thing to do in a downturn is to stop investing. He has cut capital spending in half and taken some layoffs, but still expects to invest up to $100 billion in building new manufacturing capacity in New York.
You don’t have to rush into MU stock. But by the end of 2023, any long-term investor who isn’t in on shares will likely have missed a great opportunity.
Jabil (NYSE:JBL) was founded in Detroit by James Golden and William Morean. The company has done many things over the years. These days, though, it’s in electronics logistics. This makes it a good partner for Apple (NASDAQ:AAPL), which is seeking to diversify its supply chain away from China.
Jabil has just begun producing plastic AirPods components in India for assembly in Vietnam. Apple shipped 23.8 million AirPods in the third quarter alone. Jabil is already making iPhone and iPad covers as well.
This could be just the start. Apple wants 25% of its production to move into India, up from between 5% and 7% now. And on top of that, Jabil also works with Amazon (NASDAQ:AMZN).
Jabil has averaged strong returns over the last five years. Yet, JBL stock remains very cheap, making it one of the undervalued tech stocks. It currently sells for about 10 times earnings while still offering steady growth. It also offers a small dividend. The market capitalization is just under $11 billion despite more than $33 billion in revenue last fiscal year. None of the five analysts following JBL on TipRanks want you to sell shares.
A stable play in a growing market and at a reasonable price? Yes, please.
Undervalued Tech Stocks: ServiceNow (NOW)
ServiceNow (NYSE:NOW) is down 15% over the last one year, but that’s about the same as the Nasdaq, which is down 16% over the same period. That’s a small comfort to those who bought this pick of the undervalued tech stocks before its fall.
This company was built on workflow automation. Founded 20 years ago, ServiceNow is currently run by CEO Bill McDermott, who previously ran European software company SAP (NYSE:SAP).
ServiceNow usually brings about 5% of revenue to the net income line. Last year, that came to 4.5% of $7.3 billion in sales. Even with its recent fall, NOW stock trades at a huge earnings multiple but has still kept its “buy” ratings.
McDermott calls today’s environment a “platform economy.” He says it’s the ability of a company’s software stack to respond to change quickly that determines its fate. Customers like the U.S. Army and partners like Accenture (NYSE:ACN) seem to agree about ServiceNow’s responsive nature.
The big risk is that, as companies like ServiceNow grow, they enter each other’s niches. As a result, ServiceNow now competes directly in some areas with Salesforce and Workday (NASDAQ:WDAY). That’s where having a solid CEO is vital.
McDermott has a great track record, helping triple SAP’s market cap in eight years. ServiceNow shares are up 65% since the pandemic low under his tenure, despite even last year’s tech wreck. I personally swapped out shares of Salesforce for NOW stock about two years ago.
The best tribute to McDermott’s leadership is that, so far, ServiceNow has avoided the mass layoffs plaguing most tech companies. McDermott hopes to continue that trend.
I have lost a lot of money over the last few years buying and recommending Intel (NASDAQ:INTC) stock.
Since CEO Pat Gelsinger rejoined the company in early 2021, Intel has lost roughly half of its value. It’s now a yield trap. The dividend yields about 5% and, for now, it’s maintaining that.
But Intel remains the most essential American company that you can buy. That’s because Gelsinger has led a turn in strategy, from designing chips for PCs to producing chips for other companies. Gelsinger is putting $20 billion into two new plants in Ohio, breaking ground last year with help from the U.S. government, which now wants to bring production back from China.
There are two big problems with that. Labor costs are high in the U.S. and the environmental costs of making chips are huge. That’s why production moved offshore in the first place. What’s more, Intel has to match the extreme ultraviolet (EUV) techniques of rival Taiwan Semiconductor (NYSE:TSM).
While Intel and Microsoft (NASDAQ:MSFT) are losing their client franchises to phones — which now cost more than the PCs they replace — Intel is still doing well in data centers according to its Q4 earnings report. That and the increased use of the cloud for artificial intelligence (AI) should keep things going until Intel’s new facilities start production.
Meanwhile, the dividend will keep you warm.
Undevalued Tech Stocks: BigBear.ai (BBAI)
If you want to speculate on artificial intelligence (AI) technology this year, consider BigBear.ai (NASDAQ:BBAI).
BigBear is worth just $500 million as of this writing, up significantly in just a few days. The reason for that is competitor OpenAI, whose ChatGPT technology is now all the rage.
But there’s a big problem with ChatGPT, as venture capitalist Roger McNamee of Elevation Partners told CNBC recently. It’s the old saying: “garbage in, garbage out.” Since ChatGPT uses input scraped from the internet, its output can be suspect. You need to know the source of your data to get reliable answers from an AI engine.
That’s what BigBear is trying to do — create decision intelligence, prescriptive answers based on “what if” questions, built on existing data stores.
As unreliable inputs create unreliable outputs, closed systems like BigBear’s could deliver better results, in turn making for big contracts. The company had sales of less than $150 million last year, little changed from 2021, and suffered a huge loss. But now it’s in the eye of a hurricane. If former IBM (NYSE:IBM) executive and current CEO Mandy Long can manage the storm while former BigBear CEO Reggie Brothers becomes operating partner at the company’s private equity owner, BBAI stock could be a winning investment in 2023.
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On the date of publication, Dana held long positions in GOOGL, AMZN, AAPL, INTC, MSFT, CRM and NOW stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Artificial Intelligence, Cloud, Software, Technology
Penny Stocks, Undervalued Stocks