Higher interest rates have altered the risk-adjusted return parameters for expensive stocks. The technology sector fared poorly in the first half of 2022 when investors scrutinized valuations, and many are now looking for tech stocks to buy on the dip.
During the boom years of the pandemic, governments issued stimulus checks to consumers. The Federal Reserve pumped trillions into the stock market. It also eased credit. Back then, tech investors could gain by holding stocks that did not earn a profit.
In the second half of the year, the bearish sentiment may ease. This will slow the sell-off. Cautious investors should demand more safety. Tech stocks to buy on the dip must have a manageable balance sheet, ideally including low debt. They should post quarterly profits. Alternatively, growth firms need to demonstrate they have business models that are eventually profitable.
Here are seven tech stocks to buy on the dip.
| META | Meta Platforms | $166.22 |
| ORCL | Oracle | $75.34 |
| CRM | Salesforce | $176.87 |
| SAP | SAP | $91.86 |
| STX | Seagate Technology | $77.05 |
| PATH | UiPath | $18.61 |
| UPST | Upstart | $25.25 |
Meta Platforms (META)
Meta Platforms (NASDAQ:META) investors who ignored Apple’s (NASDAQ:AAPL) Identifier for Advertisers (IDFA) change last year paid a heavy price. Apple’s iOS change resulted in a signal loss for Meta’s advertising platform. Advertisers could not track Facebook users in detail. In response, Meta Platforms is investing in the right technology to handle the meaningful headwind.
Meta is investing in Reality Labs for the long term. Its Quest 2 headset has had modest success. It will continue funding its product teams to build future products. With at least two versions planned in the future, Meta is committed to a virtual and augmented reality platform. Its pivot to the metaverse does not come cheap. Meta Platforms will spend billions in the next decade.
META stock is not for short-term investors who expect a rebound. The Meta platform will have a longer product cycle. Immediately monetizing the metaverse is not a priority.
Oracle (ORCL)
Oracle (NYSE:ORCL) is constantly increasing shareholder returns. In the past quarter, it bought back $600 million in shares. CEO Safra Catz says that Oracle expects to buy the same amount in the current quarter. Capital expenditures will rise slightly this year to support its cloud initiatives. Investors should expect gross margins to rise significantly in the coming years.
Corporate customers will find Oracle’s autonomous database appealing. To lower the cost of administering its database, Oracle is developing the APEX platform. APEX powers Oracle’s autonomous database. It will remove the need for a human database administrator. Companies will not need to pay expensive experts to run this system.
Oracle is strong business momentum from its fourth quarter. In Q4, the company reported non-GAAP earnings per share of $1.54. Revenue grew by 5.4% year-over-year to $11.8 billion. Its infrastructure cloud revenue grew by 36% YOY. NetSuite ERP cloud revenue grew by 27% YOY.
Salesforce (CRM)
CRM) sticker.” width=”300″ height=”169″ />
Salesforce (NYSE:CRM) is a highly profitable firm. In the first quarter, the company posted revenue growing by 24% YOY to $7.41 billion. Operating cash flow rose by 14% YOY to $3.68 billion. In the second quarter, the company expects revenue to grow by 21% YOY to between $7.69 billion and $7.7 billion.
For the full year of fiscal 2023, Salesforce’s revenue will grow by 20% YOY to $31.7 billion to $31.8 billion. Salesforce raised its outlook because of contributions from integration with Slack. Acumen, which it bought a few years ago, also benefits from strong demand traction. Looking ahead, Chief Financial Officer Amy Weaver said that the company would try to bring discipline in its mergers and acquisitions efforts.
Customer attrition numbers are improving. Salesforce’s multi-cloud product resonates well with customers. As more customers add more cloud services, they are less likely to cancel their Salesforce subscription, and the number of customers with five or more is up 21% YOY. In addition, its customers in the financial services industry are unlikely to change to competing solutions.
SAP (SAP)
SAP (NYSE:SAP) is underperforming because investors fear the impact of Russia’s invasion. In the last quarter, the company discontinued its cloud data center operations in the country. This resulted in a cost of 70 million EUR ($71.5 million). It also structured an exit.
Despite the near-term headwinds, SAP reaffirmed its outlook for the year. It expects cloud revenue of up to 11.85 billion EUR ($12.1 billion), up by 26% YOY. Cloud and software revenue will grow by between 4% to 6% to 25 to 25.5 billion EUR ($25.5 billion to $26 billion).
The war is hurting the technology sector. However, cyberattack risks are rising as a result. Customers are adopting cloud solutions in response. For example, SAP formed a partnership with Arvato Systems for its first sovereign cloud platform for the public sector in Germany.
SAP’s RISE offers business-transformation-as-a-service. Customers are adopting RISE with SAP when they redesign their business processes. The solution helps them transition to agile enterprise resource planning (ERP) on the cloud. In addition, the platform supports custom solutions.
Seagate Technology (STX)
STX) sign hanging above an office in Silicon Valley, California.” width=”300″ height=”169″ />
Seagate (NASDAQ:STX) is a storage provider. The company has pivoted from legacy PC storage for consumers to mass capacity. This includes video and image applications and network-attached storage (NAS) solutions.
Video and image applications are not cyclical, unlike the PC market. Seagate expects seasonal strength in this sector in both the September and December quarter. In the consumer space, the company anticipates a temporary slowdown in PC demand. Inflation and the economic slowdown are headwinds. Still, Seagate expects strong gross margins. The business generates strong free cash flow. It does not need much capital expenditure.
Investors should expect steady demand for mass capacity drives. Non-hard disk drives, or solid-state drives, face some supply constraints. Fortunately, Seagate has enough inventory to meet demand. In the long term, demand for more storage will rise. STX stock should benefit from sustained profit margins.
Seagate positioned its products to capture more market share in mass capacity drives. It now supplies 20 terabyte drives and is continuing to grow its maximum capacity offerings. This will appeal to customers running cloud storage solutions.
UiPath (PATH)
PATH).” width=”300″ height=”169″ />
UiPath (NYSE:PATH) raised its guidance for fiscal year 2023. It expects revenue of $1.09 billion. Annual recurring revenue will range from $1.2 billion to $1.3 billion. On a non-GAAP basis, it expects to gain $15 million.
Investors should consider PATH stock because it is one of the few firms raising guidance. The company supplies robotic process automation software. Customers need UiPath to realize efficiencies. This will help them cut operating costs.
Co-Chief Executive Officer Daniel Dines said that the robotic process automation (RPA) market is a $60 billion opportunity. UiPath will grow its market share by offering an end-to-end process automation platform. The firm bought Cloud Elements to strengthen its application program interface. This enables the platform to use artificial intelligence to emulate a human user understanding of documents and natural language.
UiPath serves customers in the healthcare and banking industries. This is a stable market that should lead to customer growth and higher ARPU.
Upstart (UPST)
On July 8, Upstart (NASDAQ:UPST) plunged when it cut its preliminary second-quarter results. The company lowered its revenue expectation to $228 million. This is down from the previous guidance of $295 million to $305 million. It will lose between $27 million and $31 million, down from a negative $4 million to break-even net income.
CEO Dave Girouard said that funding constraints in its marketplace hurt its revenue. The company also converted its loans on its balance sheet into cash. The tight lending conditions will continue to hurt UPST stock. Shares could dip further throughout the second half of the year. Shareholders should brace for widening paper losses from here. Patient investors may consider the stock after the company posts better results.
Upstart may not recover until the Federal Reserve ends its interest rate hike cycle. This may happen in early 2023. Before that happens, Upstart may report better underwriting volumes from its AI-powered data analytics. Wait for the company to pre-announce a rebound before buying the stock on the dip.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.