Technology has become an indispensable part of modern society, powering various aspects of our lives. The tech industry, like many others, experienced a boom during the pandemic. However, market overenthusiasm and excess borrowing led to a drop in tech stock prices in 2022. Despite this, the current situation presents an excellent opportunity for long-term investors seeking bargains.
Here are three under-the-radar tech stocks that investors should consider for 2023: Analog Devices (ADI), Cloudflare (NET), and CrowdStrike (CRWD).
Analog Devices
Analog semiconductors play a vital role in devices we use daily, such as smartphones, medical equipment, data centers, and satellites. Analog Devices is a leading semiconductor company that generated $12 billion in revenue in fiscal 2022, up 64% from 2021.
The company’s revenue is diversified and not highly dependent on consumer electronics, making it less volatile than other chip companies. Analog Devices also offers a growing dividend and share-buyback program, with a free-cash-flow margin of 31%. Management has pledged to return 100% of this cash to shareholders, with the company buying back $3.1 billion in stock and paying out $1.5 billion in dividends in fiscal 2022. The dividend currently yields just under 2%, and the dividend payout has risen in each of the past 19 years.
With the increasing demand for analog chips as the world becomes more connected, Analog Devices could be an excellent choice for dividend-growth investors.
Cloudflare
Cloudflare has developed a global network of data centers that provide fast and reliable connections to data, benefiting websites and cloud-based applications that need to function quickly and reliably. The network can be beneficial for AI applications that use significant amounts of data. Cloudflare and Nvidia have partnered to bring Nvidia AI-supported application frameworks to Cloudflare’s network.
Cloudflare’s sales reached $975 million in 2022 on 49% growth, and management expects at least a 36% increase to $1.33 billion in 2023. The company has a gross margin of over 75%, suggesting it can be quite profitable at scale, but it hasn’t achieved GAAP profitability yet. The stock is suitable for long-term investors with moderate risk tolerance, as it has a long way to go before achieving GAAP profitability. The stock is trading down more than 50% from its 52-week high, and intrepid investors should consider putting this innovative company on their watch list.
CrowdStrike
CrowdStrike specializes in cybersecurity and protecting endpoints from bad actors, which is critical with the rise of remote workforces and reliance on the cloud. The company has a customer base of over half the Fortune 500 companies and more than 25% of the Global 2000, with phenomenal customer growth.
CrowdStrike’s annual recurring revenue hit $2.3 billion on 54% year-over-year growth in Q3 of fiscal 2023, with significant free cash flow. Despite the tech industry taking a hit as businesses scale back spending, cybersecurity is a critical area that companies cannot afford to scrimp on, making it more durable during a potential recession.
CrowdStrike’s stock price is down more than 50% from its 52-week high, but the company’s results speak volumes and are starting to draw investor attention again.
Opportunities for Investors
The current market presents an opportunity for investors to invest in undervalued tech stocks with solid fundamentals and growth prospects. Analog Devices, Cloudflare, and CrowdStrike are three companies that could offer significant returns in the long run. Analog Devices is good for dividend-growth stocks, Cloudflare for cloud computing growth, and CrowdStrike for cybersecurity.
Despite recent market volatility, investors can position themselves for long-term success in the tech industry by focusing on companies with strong fundamentals, diversified revenue streams, and promising growth prospects.
