The tech market hasn’t bottomed yet, and investors should avoid mega-caps at all costs, but there are rising stars from AI and gaming to semiconductors that underpin new tech trends — and they’re undervalued, not overvalued.
Tesla (NASDAQ:TSLA) is tankering. Over the past 12 months, the stock has declined nearly 30%, with Elon Musk trying to reverse the decline for months.
The tech market is a sea of red right now, and it’s dragging Wall Street down with it.
Shopify (NYSE:SHOP) has lost about 42% over the past year.
Coinbase (NASDAQ:COIN) has tanked nearly 70% over the same time period.
Even Meta (NASDAQ:META) has dropped nearly 20%.
It is now a time for reflection, where investors should look deeper into the less obvious corners of the tech world, where spectacular things are being achieved, and where valuations are still too low.
Mega-cap tech stocks only have downside, but we see all kinds of upside in some lesser-known stocks in the AI, gaming, and semiconductor playgrounds.
#1 Chatbot GPT Trailblazer BigBear.ai (NYSE: BBAI)
Chatbot GPT is the hottest AI buzzword right now, and any software company involved is surfing these tailwinds. Chatbot GPT is privately owned and reached nearly 100 million monthly active users in January – only two months after it launched. This makes it the fastest growing consumer application in the history of the world.
Microsoft has poured billions of dollars into OpenAI’s ChatGPT, and that fact has investors scrambling for any company working on AI technology.
BigBear.ai is one of them, and it’s up over 300% year-over-year.
An emerging leader in AI analytics and cyber engineering solutions, BigBear is one of the most exciting stocks in the sector that has been fueled by the crypto craze.
This new entrant is still in the red. While it’s growing its revenue base, up to $170 million projected for 2022, earnings closed in last year’s third quarter with $16 million in net losses. But what investors are watching comes next…
BigBear has been one of the major attractions for investors in recent days and weeks $900 million contract With the US Air Force announced in Jan.
Other stocks in this sector that are riding the AI craze of 2023 include SoundHound (NASDAQ: SOUN) and C3.ai (NYSE: AI), the latter of which is up more than 100% so far this year.
#2 Enthusiast Gaming (NASDAQ: EGLX), #1 in the US for unique visitors this year
Another craze of online gaming is dominating in 2023. It’s slowly turning into a $50 billion subscription business, and Enthusiast stands out—not least because it was ranked number one in the United States for unique visitors.
In this insanely fast-growing gaming segment, it’s all about traffic, and Enthusiast just won comScore’s top ranking for unique visitor traffic.
Enthusiast Gaming operates an online network of approximately 50 gaming-related websites, 700 YouTube channels, a gaming development studio, not to mention the 500 or so gaming influencers it manages on Twitch and Youtube. It also owns and manages its own esports teams for the biggest names in gaming: Call of Duty, Madden NFL, Fortnite, Overwatch, Super Smash Bros., Rocket League and Valorant.
For this segment, gaming is monetized in a “Gaming House” from fans, fans, and more fans (in other words, traffic). Enthusiasts have built this home with a large base of people for advertising, subscriptions, ticket sales, broad-spectrum e-commerce, in-app purchases, premium content, NFTs, the Metaverse and even crypto.
And with their recent confirmation by RBC Capital Markets, this new, pure-play entrant has hit the ground running. ‘Buy’ rating and a price target of C$3.50. That’s pretty high for a company now trading for less than $1.00.
Earnings, too, look strong, with Enthusiast’s Q3 2022 revenue coming in at $51.12 million, up from $37.06 million for the same quarter last year.
#3 Himax Technologies (NASDAQ:HIMX), the standout in the chip war
Semiconductors are some of the best places to be as an investor right now, but they’re not all created equal. The chip wars have just begun, and a handful of countries dominate this vital industry.
Himax is a leading Taiwanese semiconductor company that could turn out to be a multi-bagger. It’s one of the most profitable small-caps ever, and it’s smart. It is trading at a cheap relative to its earnings. In fact, till mid-February, it was trading at a PE multiple of 6X.
himax has a roce (return or pre-tax profit on capital employed) of 26%, compared to an average of 15% for the rest of the semiconductor industry. It’s undervalued at this point, likely because it has the potential for returns by continually reinvesting capital and at rising rates of return, it has returned only 14% to shareholders over the past five years. So still no one is paying attention. This makes Himax undervalued in a fast-growing segment that is at the center of a global supply war.
computer chips are not only important to our daily electronics… they are critical inputs to data centers, cars, and critical infrastructure. In short, they are the new oil, and their supply is the stuff of geopolitics and national security.
US ally makes Taiwan more than 90% One of the world’s most advanced semiconductor computer chips, and Himax is a very strong outlier in a space that has been difficult to navigate.
So, will 2023 bring relief to battered tech stocks? Value stocks have been the darling of the market this past year due to high inflation and rising interest rates, but in 2023, the tightening momentum may stop, and investors may return to growth stocks, a JP Morgan strategist writes. Two sub-sectors in technology that are getting a lot of attention right now are chip maker And video game makers,
Take AMSL for example (Nasdaq: ASML) Netherlands-based manufacturer of high-tech semiconductor-production equipment. ASML’s machines help the world’s largest chip makers continue to produce smaller and better chips, a process that has been getting better since the 1960s. As noted above, companies with a global competitive advantage in the chip-industry are not only the darling of investors but have become targets of national interest. ASML is no exception here, as it also receives direct attention from the White House, which prevents the company from selling its much-anticipated machines to rival China.
For a company that the BBC once described as “relatively obscure”, it has not only managed to become a leader in chip-making machines, it has actually become Europe’s most valuable tech firm,
just like asml And Himax Technologies, chipmaker Taiwan Semiconductor Manufacturing, better known as TSM (NYSE:TSM), has been in the headlines last year. Often dubbed as the most advanced chip maker in the world, the company has received offers from various countries to open new production facilities as governments around the world begin to understand the importance of domestic chip manufacturing.
According to a recent Bloomberg article, Washington has offered some $50 billion in tax incentives to entice chip makers, and countries like Japan have offered similar incentives to attract tech companies like TSM. Last week, the Taiwan-based company revealed plans to open a second chipmaking plant in Japan in southwestern Kumamoto Prefecture, with a total investment of close to $7.4 billion. TMC’s second plant is set to come online in late 2020, according to Bloomberg.
Moving from hardware to software, the most interesting stocks from an investor’s perspective are videogame makers like Taketu and EA Sports (NASDAQ:EA), The latter, which has produced famous series of games such as FIFA, The Sims and Battlefield, disappointed investors in 2022 as delays and cancellations impacted earnings. As a result, the stock has hit a 52-week low since its earnings report earlier this month.
Cowen analyst Doug Creutz, who has an outperform rating on the stock, cut his target price to $136 from $158, saying the disappointment was “across the board.”
However, despite the poor earnings and delays, the pipeline for 2023 is looking strong, with big releases like Star Wars Jedi Survivor, FIFA Mobile and the EA Sports PGA Tour coming up.
EA’s Rivals Take-Two Interactive (NASDAQ: TTWO) has followed a similar pattern in many ways. Both video-game developers recently lowered their outlooks and reported weak earnings, but in some ways Take-Two is looking better than its peers. To start with the negative news, the company sees lower spending for some of its costlier content as consumers are starting to become more cautious about spending on entertainment such as streaming services and video games. Take-Two’s acquisition of Zynga, the well-known maker of mobile video games, has put it on a very fast track of growth, but its finances have taken a hit.
While both stocks have turned “cheaper” over the past year, Take-Two is looking like the higher-risk, higher-reward option for both, as the company’s success will depend on a few big releases this year.
When it comes to video-games, perhaps the most stable stock is Microsoft (NASDAQ: MSFT)
Microsoft’s acquisition of Activision Blizzard solidified it as a major player in the video game industry. With the move, it became the third largest gaming company by revenue, trailing only Tencent and Sony. This acquisition has given it access to some of the most popular video game franchises such as Call of Duty and Candy Crush.
Additionally, with its strong ecosystem around Xbox Game Studios and Xbox Game Pass, Microsoft is well positioned to take advantage of the growing trend of subscription-based services in the gaming industry. Overall, Microsoft’s influence on the video game industry makes it an attractive investment opportunity for investors seeking exposure to the sector.
One of the hottest trends in tech right now is undoubtedly AI. Chatbot GPT, the famous artificial intelligence chatbot that allows users to interact with different personalities and subjects, has been one of the most interesting technological developments in recent times. It’s no surprise that big tech companies like Nvidia (NASDAQ: NVDA) Realizing the earning potential of AI-as-a-Service. The blue-chip tech company that saw its share price drop more than 50% in 2022 before recovering again at the end of last year is eyeing a new path to growth, and AI is definitely one of its key drivers. One of the best bets.
Nvidia’s latest H100 GPU is supporting more robust AI-workloads, and is therefore poised to become the leading platform for deep-learning and large-scale AI networks. As the AI field grows in demand for data computing, Nvidia wants to provide developers with more firepower.
Given its exciting pipeline of AI-focused enterprise products and services, the company has given investors reason to be bullish again in 2023.
By. tom cool