The United States economy has been resilient thus far, as the job market and corporate earnings have been strong. As such, aggregate earnings for S&P 500 companies rose 0.1% in the first quarter, exceeding analysts’ forecasts of a 5-6% decline three months ago. Consumer spending has remained remarkably strong despite this inflation, and demand for artificial intelligence has surged growth, particularly towards technology stocks.
Technology stocks have dominated these first-half gains. Though J.P. Morgan did state caution for the Federal Reserve’s projections on two more rate hikes this year likely producing a mild recession, investors could have already accounted for this in the long term following the 19% loss in the S&P 500 during 2022.
Arista Networks (ANET)
Arista Networks (NYSE:ANET) is a leading computer networking company specializing in multi-layered network switches for cloud computing solutions. It has been rated the cloud computing industry leader, surpassing giants Cisco, Juniper, and Dell Technologies in the cloud computing market.
Arista’s financial performance is impressive, with Q1 2023 revenue reaching $1.35 billion and exceeding analyst expectations by $43.3 million. Its revenue growth has a 53.3% YoY CAGR, which is three times higher than the sector median. The company demonstrates strong profitability with a 31.24% Net Income Margin TTM that also significantly outperforms the sector median. Additionally, Arista shows signs of being undervalued, with a $1.43 EPS for the quarter beating analyst expectations by $0.08 and growing 65% YoY.
The global networking services market, valued at $6.67 billion, is rapidly growing across various industries such as telecommunications, retail, healthcare, and communications. It is projected to reach $64.9 billion by 2030 at a 32.9% CAGR. This market growth offers new customer opportunities for Arista and further drives revenue.
Arista has already started capitalizing on the growing market, unveiling its Healthcare Network as a Service at the 2023 HIMSS global health conference. The service leverages machine learning to monitor patient health records to provide treatment suggestions, and artificial intelligence to monitor critical medical devices on a unified network. With this specialized networking service for healthcare institutions, Arista expands its market of services.
With the stock up 30.2% YTD and analysts predicting an average 11.06% upside in the next 12 months, Arista is strongly considered as a “buy” stock. Its robust financial focus on healthcare services and acquisition of an innovative competitor make ANET an attractive investment.
Oracle Corporation (ORCL)
Oracle Corporation (NYSE:ORCL) is a computer software company that addresses enterprise information technology environments. Its early commitment to artificial intelligence and unique technology are its main advantages.
ORCL stock is up 36.62% year-to-date. The global software market size is expected to grow at a 11.5% CAGR from $652.61 billion in 2023 to 1.397 trillion by 2023. With the recent AI trend, Oracle has grown 59.56% YoY and demonstrated excellent financials largely led by the Gen 2 Oracle Cloud Infrastructure (OCI). In FY Q4 2023, revenue of $13.84 billion was up 16.9% YoY, cloud revenue of $4.4 billion was up 55%, and non-GAAP EPS was $1.67. All in all, it’s one of those technology stocks to buy.
Oracle’s growth, driven by its early and therefore more advanced commitment to harness the benefits of AI, has positioned itself to succeed in cloud infrastructure. Its Gen 2 OCI uses hardware and software that is fundamentally differentiated from other companies, where CPUs and GPUs are interconnected using an RDMA network. Along with a dedicated set of cloud-controlled computers for security and data privacy, Oracle is able to deliver much higher performance than any other cloud competitors. In addition, the high-bandwidth, low-latency RDMA network is optimized for building large-scale GPU clusters that are used to train generative language models.
27 analysts from Yahoo Finance have given the company a mean 1 year price target of $123.74 and many notable firms have also upgraded their rating for ORCL stock. Overall, with a matured and unique cloud infrastructure, Oracle is poised for growth alongside the AI wave.
Adobe (ADBE)
Adobe Inc. (NASDAQ:ADBE) is a computer software company known for its innovative digital media and creativity tools, offering applications such as Photoshop, After Effects, and Premiere Pro to its consumers. With a diverse range of innovative software, Adobe not only empowers professionals but also enthusiasts to help bring their ideas to reality. ADBE stock is even up 50.59% year-to-date.
The rise of AI has had a profound impact on Adobe, leading to the release of powerful tools that leverage the capabilities of this technology. For example, Adobe unveiled a new tool featured in Photoshop called “Generative Fill” which utilizes AI to edit or expand images. The tool shocked the world as it was released earlier than anticipated and worked almost flawlessly.
According to GrandViewResearch, the global AI market size was valued at $136.55 billion as of 2022 and is expected to grow at an impressive 37.3% CAGR through 2030. Though the creative industries market is projected to grow at a CAGR of only 4.29% for the next decade, the integration of AI tools, such as those by Adobe, has the potential to significantly uplift the market by enabling creators to push the boundaries of imagination and productivity.
Adobe is also in a great financial state as its most recent report indicates an 11.54% increase in revenue YoY Adobe gains most of its revenue from subscriptions which is important because it is very little cost of revenue expense. Subscriptions have helped Adobe improve its gross margin from 85% in 2019 to 88% in 2021. As Adobe continues to release new and improved features, more creators would likely gravitate towards its subscription model, further bolstering Adobe’s revenue growth and financial stability. This makes it one of those technology stocks to buy.
Based on insights from analysts at Yahoo Finance, Adobe emerges as a highly favorable investment choice, with a 1-year price target of $537.04 and overwhelming “buy” consensus. These all indicate widespread optimism about Adobe’s future performance, and as Adobe maintains its commitment to innovation and leverages the power of AI, it remains an excellent investment choice poised for continued growth and success in the foreseeable future.
On the date of publication, Michael Que 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.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
