These tech stocks remain cheap despite recent stock-price growth.
Editor’s Note: This article has been edited to clarify that a one-time, non-cash pension settlement charge impacted IBM’s net income.
The rise of artificial intelligence (AI) has left the stock market with relatively few bargain stocks. Many of the top tech stocks have logged triple-digit gains since the bottom of the bear market of 2022.
Fortunately, investors can find potentially lucrative stocks without paying uncomfortably high premiums and hoping the growth will hold up long enough to drive market-beating returns. Such possible opportunities exist today with AT&T (T 0.32%), Qualcomm (QCOM 2.19%), and International Business Machines (IBM -1.17%).
Let’s take a closer look at each.
In the push for AI stocks, investors seem to have forgotten about telcos such as AT&T. Admittedly, investors sold the stock in past years, and the magnitude of missteps with DirecTV and its former segment, which is now part of Warner Bros. Discovery, came to light.
However, the new and leaner AT&T has shown signs of improvement, strongly competing with its main rivals, Verizon Communications and T-Mobile, as its networks support increasingly critical cloud and AI functions.
Image source: Statista.
Despite the company’s almost 1.2 million wireless net adds and around 700,000 fiber net adds for the year, revenue for the first nine months of 2024 was $90 billion, representing a modest drop from year-ago levels. Rising equipment costs also weighed on financials, and the $6.7 billion in net income for the first three quarters of 2024 was a 44% yearly decline.
Despite the falling profits, AT&T benefits from growth where it counts, and the stock has continued to rise, despite that news. Also, the 13 price-to-earnings ratio (P/E) could point to some undervaluation, positioning investors to profit from a revamped business on the cutting edge of tech.
Qualcomm may be one of the more overlooked companies in the AI chip space. The generative AI push also applies to phones, and Qualcomm has addressed this market demand through its AI-equipped Snapdragon 8 Gen 3 chipset.
As the 5G upgrade cycle runs its course, Qualcomm can benefit from a new upgrade cycle as consumers demand phones with AI capabilities. This is important, as smartphone chipsets remain its largest revenue source.
Additionally, Qualcomm has diversified its revenue base as it anticipates a future that depends less on smartphones. To this end, it formed the Internet of Things (IoT) and automotive segments to capture evolving communications needs.
Revenue for the first nine months of its fiscal 2024 (ended June 23) was $29 billion. While that grew by only about 6% yearly, it reversed the declines of more recent quarters, likely signaling the beginning of an upcycle.
Moreover, slower growth in operating expenses and a boost in investment income helped the bottom line. To that end, net income for the same period was $7.2 billion, a yearly increase of 26%.
Although the stock price has risen over the last year, the stock sells at a relatively modest P/E of 22, lower than many of its largest counterparts in the semiconductor industry. As the AI upgrade cycle accelerates, a renewed growth cycle could take the stock higher in the foreseeable future.
Like many of its established tech counterparts, IBM has successfully renewed its business, thanks, in part, to AI. The company’s recovery began when IBM bought cloud giant Red Hat in 2019. This sparked a new business line for the cloud stock, and growth improved as it spun off its managed infrastructure business into Kyndryl.
Cloud growth has also received a boost amid the rising demand for generative AI. To that end, watsonx — its data platform — focuses on AI foundation models, a data fabric to unify data sources, and generative AI to improve its creative and problem-solving capabilities.
Admittedly, the company’s $45 billion in revenue for the first nine months of 2024 may seem lackluster, given the 2% yearly growth. Still, the software segment, which includes the cloud and watsonx, increased revenue by 8% over that period.
Also, losses on investments and foreign currencies and the effects of a one-time, non-cash pension settlement charge have weighed on the company. That caused net income for the first three quarters of 2024 to fall to $3.1 billion versus $4.2 billion in the same year-ago period.
Still, investors have overlooked what’s likely to be the temporary pullback in profits and bid the stock to record highs. Additionally, at a P/E of 24, the stock-growth spurt likely has a long way to go, indicating investors can still benefit from IBM’s comeback.
