The technology sector is transforming the economy, driving innovation, and disrupting traditional industries with advanced technologies like AI, IoT, cloud computing, and cybersecurity, forcing businesses to adapt and compete. Moreover, the expected interest rate cuts later this year will benefit the tech sector.
Given the industry’s bright growth prospects, investors could consider buying fundamentally sound tech stocks Zoom Video Communications, Inc. (ZM), Logitech International S.A. (LOGI), and Gilat Satellite Networks Ltd. (GILT) for solid returns.
Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the tech industry’s outlook.
Given its continuous innovations and developments, the technology industry is one of the world’s fastest-growing sectors. According to the most recent forecast by Gartner, worldwide IT spending will reach $5.06 trillion in 2024, up 8% from 2023, driven by growing GenAI initiatives among enterprises.
John-David Lovelock, Distinguished VP Analyst at Gartner, said, “With spending on IT services on track to grow by 9.7% to eclipse $1.52 trillion, this category is on pace to become the largest market that Gartner tracks.”
Additionally, digital transformation, cloud adoption, business intelligence, increased demand for data security and privacy protection, and companies’ emphasis on cost-effectiveness contribute to solid demand for technology services. The U.S. IT services industry is expected to grow at a CAGR of 5.3% to $675.20 billion by 2029.
Also, the introduction of 5G, the integration of the Internet of Things (IoT) into devices, and the expansion of cloud-based telecommunication networks drive demand for advanced communication and networking equipment. The global communication equipment market is projected to expand at a CAGR of 6%, reaching $348.70 billion by 2030.
Moreover, the rapid growth in the IT industry across multiple sectors such as business, education, finance, healthcare, and government has been a key driver for the expansion of the IT hardware market. The global IT hardware market is expected to grow at a 7.9% CAGR to $191.03 billion by 2029.
Investors’ interest in tech stocks is evident from the Technology Select Sector SPDR ETF’s (XLK) 35.5% returns over the past year.
Considering these conducive trends, let’s discuss the fundamentals of the three featured tech stocks in detail.
Zoom Video Communications, Inc. (ZM)
ZM provides a unified communications platform, which enables video meetings and provides phone services and virtual event solutions. Its product portfolio includes Zoom Meetings, Zoom Chat, Zoom Rooms, Zoom Events, OnZoom, and Zoom Webinars. It serves education, entertainment, finance, enterprise infrastructure, and software industries.
On March 25, 2024, ZM introduced Zoom Workplace, an AI-powered collaboration tool, on AWS Marketplace. Customers can now effortlessly purchase Zoom Workplace solutions like Meetings and Team Chat through the AWS Marketplace, simplifying tech purchases and optimizing AWS resources.
This allows businesses to seamlessly integrate Zoom Workplace into their existing AWS infrastructure, enhancing communication and productivity.
On the same day, ZM and Avaya, a leader in CX, cloud collaboration, and contact center solutions, established a partnership to improve collaboration experiences for global enterprises. Avaya will incorporate Zoom Workplace, ZM’s AI-powered platform, into its Communication and Collaboration Suite.
This integration provides easier communication management and improved collaboration tools to Avaya’s enterprise customers, maintaining existing investments while embracing ZM’s unique technologies.
ZM’s trailing-12-month Return on Total Assets (ROTA) of 6.42% is 370.7% higher than the 1.36% industry average. Its 14.08% trailing-12-month net income margin is 484.1% higher than the 2.41% industry average. Also, its 5.19% trailing-12-month Return on Total Capital (ROTC) is 114.1% higher than the 2.43% industry average.
During the fourth quarter, which ended January 31, 2024, ZM’s revenue grew 2.6% year-over-year to $1.15 billion. Its non-GAAP income from operations came in at $443.75 million, up 9.6% year-over-year. The company’s non-GAAP net income and net income per share increased 21.1% and 16.4% from the prior-year quarter to $443.97 million and $1.42, respectively.
For the first quarter that ended April 30, 2024, analysts expect ZM’s revenue and EPS to increase 2% and 2.5% year-over-year to $1.13 billion and $1.19, respectively. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
ZM’s stock has declined marginally intraday to close the last trading session at $61.23.
ZM’s POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ZM has a B grade for Growth, Value, and Quality. Within the Technology – Services industry, it is ranked #5 out of 77 stocks. To see ZM’s additional Momentum, Stability, and Sentiment ratings, click here.
Logitech International S.A. (LOGI)
Headquartered in Lausanne, Switzerland, LOGI designs, manufactures, and markets products that connect people to working, creating, gaming, and streaming worldwide. The company offers pointing devices, such as wireless mouse; corded and cordless keyboards, and keyboard-and-mouse combinations; PC webcams; and other accessories for mobile devices.
LOGI’s trailing-12-month ROTC and ROCE of 16.30% and 27.26% are significantly higher than the industry averages of 2.43% and 3.19%, respectively. Additionally, the stock’s 14.24% trailing-12-month net income margin is 490.8% higher than the industry average of 2.41%.
LOGI’s net sales for the fourth quarter that ended March 31, 2024, came in at $1.01 billion, up 5.4% year-over-year. Its non-GAAP operating income rose 92.7% year-over-year to $158.61 million. Its non-GAAP net income increased 91.7% year-over-year to $154.43 million, and its non-GAAP net income per share grew 98% over the previous year’s quarter to $0.99.
Street expects LOGI’s EPS and revenue for the fiscal 2025 first quarter ending June 30, 2024, to increase 38.5% and 5.3% year-over-year to $0.90 and $1.03 billion, respectively. Also, the company topped consensus EPS estimates in three of the trailing four quarters.
Over the past year, LOGI’s stock has gained 30.8% to close the last trading session at $84.39.
It’s no surprise that LOGI has an overall B rating, equating to a Buy in our POWR Ratings system.
The stock has an A grade for Quality and a B for Growth and Momentum. LOGI is ranked #6 out of 37 stocks in the B-rated Technology – Hardware industry.
Beyond what is stated above, we’ve also rated LOGI for Value, Stability, and Sentiment. Get all LOGI ratings here.
Gilat Satellite Networks Ltd. (GILT)
Headquartered in Petah Tikva, Israel, GILT and its subsidiaries provide satellite-based broadband communication solutions in Israel, the United States, Peru, and internationally. It operates in three segments: Satellite Networks; Integrated Solutions; and Network Infrastructure and Services.
On April 9, 2024, GILT announced the development of a multimillion-dollar next-generation SOTM/SOTP modem for military applications, designed to provide high-speed, secure satellite communications with advanced capabilities for battlefield superiority, highlighting their expertise in mission-critical solutions and customer trust in innovative technology delivery.
The modem is expected to significantly enhance communication capabilities for military personnel in remote locations, enabling faster and more reliable data transmission.
In terms of the trailing-12-month EBITDA margin, GILT’s 15.59% is 57.7% higher than the 9.89% industry average. Likewise, the stock’s trailing-12-month ROCE and ROTC of 9.06% and 6.53% are 183.7% and 169.2% higher than the industry average of 3.19% and 2.43%, respectively.
For the first quarter, which ended March 31, 2024, GILT’s revenues rose 29% year-over-year to $76.08 million. Its non-GAAP gross profit rose 16.2% over the prior-year quarter to $28.78 million. Its non-GAAP net income rose 56.4% from the year-ago value to $6.01 million. Also, its non-GAAP EPS came in at $0.11, representing an increase of 57.1% year-over-year.
Analysts expect GILT’s revenue for the second quarter (ending June 30, 2024) to increase 15.3% year-over-year to $77.90 million. Its EPS for the fourth quarter ending December 31, 2024, is expected to grow 66.7% year-over-year to $0.10. In addition, the company surpassed consensus EPS estimates in three of the trailing four quarters.
Shares of GILT have surged 2.8% over the past year to close the last trading session at $5.58.
GILT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
GILT has an A grade for Sentiment and a B for Value. It is ranked #2 out of 47 stocks in the Technology – Communication/Networking industry. Click here to see GILT’s ratings for Growth, Momentum, Stability, and Quality.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
ZM shares were trading at $61.79 per share on Thursday morning, up $0.56 (+0.91%). Year-to-date, ZM has declined -14.07%, versus a 9.28% rise in the benchmark S&P 500 index during the same period.
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More…
