The stock market is off to a strong start in 2024 with the S&P 500 The index is already up about 8% and setting new highs, and the good thing is that the market could continue to rise thanks to a strong US economy and receding inflation.
Tech stocks, in particular, could have another strong year thanks to catalysts like artificial intelligence (AI). It is worth noting that the Technology sector Nasdaq-100 The index has risen more than 62% in the last year, so it can be difficult to find bargains in this sector. But if you have $1,000 left over after paying your bills, saving enough for a rainy day, and paying off high-interest debt, you might want to use that investable cash to buy one share of each of these two. technology companies which look like solid buys right now based on their long-term prospects.
1.Twilio
Cloud communications specialist Twilio (NYSE: TWLO) It may seem like a surprising buy recommendation considering it underperformed the stock market last year, losing 18% of its value. There was more bad news for Twilio investors when the company released its fourth-quarter results last month.
Although it beat expectations for the quarter and its revenue for the year rose 9% to $4.15 billion, management did not provide guidance for the full year 2024. The company is conducting an operational review of its platform business. customer data, known as Segment. and says it plans to release the 2024 guidance this month once the review is complete.
However, a closer look at Twilio's forecasts for the current quarter indicate that this will be a difficult year for the company. It expects revenue growth of just 2% to 3% in the quarter, to $1.03 billion. Twilio has also forecast adjusted earnings of $0.58 per share at the midpoint, which would be a 23% increase from the prior-year period. For comparison, Twilio's full-year earnings rose to $2.45 per share in 2023 from just $0.15 per share in 2022, driven primarily by its cost-cutting measures.
The relatively slower growth forecast for 2024 explains why some investors have been selling Twilio stock. As a result, it can now be bought for just 2.7 times sales, well below its five-year average sales multiple of 6.5. Additionally, Twilio trades at 24 times forward earnings right now, making it cheaper than the Nasdaq-100Future earnings multiple of 30 (using the index as a technology sector indicator).
Buying Twilio at these multiples could prove to be a smart long-term decision. This is because the company's slowdown is likely to be temporary considering the communications platforms as a service (CPaaS) industry in which it operates. Twilio's application programming interfaces (APIs) allow businesses to create voice, messaging, and video applications to stay connected with their customers. This allows organizations to do without old-school physical call centers, which require a large upfront investment.
As of October 2023, Synergy Research Group describes Twilio as the leading player in CPaaS with a 37% market share. Meanwhile, in June 2023, market research firm IDC estimates that Twilio controls almost a quarter of this market. IDC further adds that “despite setbacks from slowing sales cycles, restructuring and downsizing, the industry remains one of the strongest IT sectors with profitable, double-digit growth within reach.” of many companies”.
This explains why the CPaaS market is projected to generate nearly $30 billion in revenue in 2026 compared to $14 billion in 2022. As such, it won't be surprising to see Twilio's growth pick up once again. in the next years. And if the company continues to control a quarter of the CPaaS market in 2026, its revenue could rise to $7.5 billion, according to IDC's forecast.
That would translate to a three-year compound annual revenue growth rate of nearly 22% based on Twilio's revenue in 2023. If Twilio maintains its current price-to-sales ratio of 2.7, its market cap could rise to 20,000 million dollars over the next three years. It would be a nice jump from the current level of almost $11 billion.
2. NVIDIA
NVIDIA (NASDAQ: NVDA) It may seem like another surprising pick for investors looking for cheap stocks. It trades at 33 times sales and 69 times earnings after its shares rose 244% last year. By those measures, it seems expensive. However, Nvidia's multiple advancements tell a different story.
As the chart above indicates, Nvidia's forward sales and earnings multiples have been declining rapidly lately. This is not surprising, as the company's revenue and results are expected to increase sharply this year. Analysts expect Nvidia's earnings to rise to $24.43 per share in fiscal 2025 from $12.96 per share in fiscal 2024, which ended Jan. 28. Its revenue is expected to rise nearly 80% to $109.5 billion.
More importantly, Nvidia appears capable of maintaining these impressive growth rates beyond 2024. Analyst Vijay Rakesh of Japanese investment bank Mizuho estimates that Nvidia could generate $300 billion in revenue from chips. AI by 2027. That would be a massive increase from the $47.5 billion it generated from its data center business last year by selling AI chips, which represented a handsome 217 increase. % compared to the previous year.
There are a few reasons why it wouldn't be absurd to see Nvidia's revenue grow at such a dizzying rate over the next three years. First, the Nvidia pair amd has forecast that the global AI chip market will generate $400 billion in annual revenue by 2027. Second, Nvidia is well-positioned to make the most of this opportunity, reportedly commanding a whopping 90 % of this market.
Additionally, Nvidia's efforts to enter additional niches of the AI chip market could eventually help it get closer to the ambitious revenue target Mizuho has set for it. All of this indicates that Nvidia could become a high-growth stock in 2024 and beyond, and its low forward multiples mean investors are getting a good deal right now.
Another thing worth noting here is that Nvidia justified its valuation last year by posting surprising earnings growth that outpaced the growth of its price-to-earnings ratio.
As such, Nvidia stock looks like a bargain considering the potential growth on offer, which is why savvy investors should consider buying it before it rises.
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Advanced Micro Devices, Nvidia, and Twilio. The Motley Fool has a disclosure policy.
Do you have $1,000? These 2 Stocks Could Be Bargain Buys for 2024 and Beyond was originally published by The Motley Fool
