The tech stock rally seen for most of the year has been taking a breather lately. But, given the huge strides made by big tech names in 2023, that hasn’t stopped market forecasters from speculating that we’re entering an AI-fueled tech bubble.
So are we? Well, not according to Peter Oppenheimer, chief global equity strategist at Goldman Sachs. “Current valuations in the technology sector are not as stretched as in previous bubble periods and the ‘early winners’ have made very strong returns with unusually strong balance sheets and investment returns,” Oppenheimer said recently. “We believe we are at the relatively early stage of a new technology cycle that could lead to increased performance.”
Oppenheimer is poised to continue market sentiment on technology-driven innovation and growth, bucking that trend, with Goldman analysts pointing investors to names that can deliver on that front.
We used this with this in mind TipRanks database To see information on their two latest technology picks. Are other analysts on Wall Street bullish on these stocks? It looks like this; Both are rated as strong buys by the analyst consensus. Let’s take a closer look.
Snowflake, Inc. (Snow)
First is Snowflake, a data cloud provider and leader in data management and analytics. The company provides cloud-based data services in the public space; User organizations can realize an unlimited amount of data management services by pooling their resources.
The potential here is huge. Snowflake has more than 8,100 clients, a number that includes 639 client companies on the Forbes Global 2000 list, as well as 402 clients that generated more than $1 million in product revenue in a 12-month period. Snowflake’s data cloud handles more than 3.3 billion daily queries, and the organization has backlogs — remaining performance obligations — totaling more than $3.5 billion.
This provides a solid basis for financial results, which investors really want to see. Over the past several quarters, Snowflake has seen both its revenue and EPS totals rise. The last reported quarter, fiscal year 2024 Q2 (July quarter) showed a top line of $674 million, a figure that marked a 35.5% year-over-year gain and beat forecasts by $11.7 million. Bottom line, Snowflake’s EPS on non-GAAP measures came in at 22 cents per share. This was 12 cents higher than the expected value and far greater than the 1-cent loss recorded in the previous year.
With 3 quarters of downward revisions to street expectations, following the latest quarterly reading, Goldman Cash Rangan sees several factors that could boost inventory sales going into the next calendar year, including: “1) Net expansion to Snowflake as consumption patterns tighten and comps ease; Maintaining/stabilizing in 4Q, leveling positive correlation to FY25, 2) We are seeing some decrease in the opportunity for sustainable expansion of G2K customers (639, 32% penetration). Temporary pressure on consumption growth in snowflake large accounts revealed in 2Q/3Q, risk to 2H expectations and 3) GA (General Availability) new products (Streamlit, Native App Framework, Snowpark Container Services, Unistore) in a fiscal/macro environment that could improve in FY25 Providing a growth option that will help solidify expectations for a re-acceleration, as well as instill confidence in Snowflake’s ability to hit $10 billion in F29 product revenue.
For Rangan, all of this adds up to a buy-rated stock, and his price target, set at $210, indicates a potential downside of 26% over the next 12 months. (To check Rangan’s track record, Click here)
Overall, Snowflake averages 30 recent analyst reviews, which include 25 Buys with 5 Holds, with a consensus rating of Strong Buy. SNOW shares are currently trading at $166.38 and have an average price target of $195.80, a combination that implies a one-year gain of ~18%. (look out SNOW stock forecast)
Block, Inc. (S.K)
We now look at Goldman’s second choice, Block, a digital financial services platform provider formerly known as Square. The company It was founded in 2009 and offers its customers a variety of products, especially in the area of mobile payments. These products include the original Square, which turns any mobile device into an entrepreneurial cash register and card reader; Cash app, for sending, spending and banking; And the crypto platform Spiral.
Digital financial applications and resources are the fastest growing areas in technology, and are widely seen as the future of financial transactions. Piggybacking on the usability and flexibility of smartphones and other tablets, these products have become the main means of online business in the last few years. As retail sector analysts talk about a cashless world, such apps are one reason.
Like the snowflake above, Block has seen a positive trend in its financial results over the past several quarters. In Block’s case, this recent increase in revenue and earnings has reversed the decline seen in 2021 and 2022 in response to peak pandemic-era growth.
The renewed profit can be seen in the block 2Q23 financial results. The company reported revenue of $5.53 billion for the quarter, beating estimates by $433 million and up 25.6% year over year. On the bottom line, Block’s EPS, by non-GAAP measures, came in at 39 cents per diluted share, 2 cents better than the consensus forecast. The company’s earnings announcement was headline gross profit of $1.87 billion. Most of this comes, by far, from the Square and Cash app. Square earned $888 million, and Cash app $968 million in gross profit. These gross profit figures indicate a y/y gain of between 18% and 37%.
Looking at Block’s performance and potential, Goldman Sachs analyst Michael Ng sees several reasons to believe the company will continue to deliver gross profit growth on that scale.
“SQ’s 2H forecast for 21% company gross profit growth, coupled with a raised 2023E EBITDA outlook, supports positive investment research that standalone cash applications should realize >20% gross profit growth. backdrop, which is evidence of secular tailwinds in their respective businesses. Growth should be driven by the continued growth of Cash app users, increasing flows into the ecosystem (strong momentum from Cash app taxes) and Square’s expanding market and into vertical software solutions,” commented Ng.
Gauging his stance, Ng set a Buy rating on SQ, and gave it a $110 price target, suggesting potential upside of 106% over the next year. (To see NG’s record, Click here)
Overall, 21 of the 27 recent analyst ratings on Block shares are Buy, compared to 6 Hold, giving the stock a consensus rating of Strong Buy. The average price target here, at $87.25, represents a ~64% upside from the current trading price of $53.24. (look out SQ stock forecast)
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Disclaimer: The opinions expressed in this article are those of the featured analysts only. The content is intended for informational purposes only. It is very important to do your own analysis before making any investment.