The year has marked a strong comeback for technology stocks. The S&P 500 index has trended higher by nearly 20% year-to-date. During the same period, the NASDAQ rallied by 44%. This is an indication of the momentum in the technology sector. The tech giants are usually in discussion, and I believe they will continue creating value. However, it’s a good time to consider exposure to some emerging tech companies.
In a dynamic world driven by innovation, promising stories exist in the lesser-known technology stocks. I believe several emerging tech stocks can deliver multibagger returns over the next five years. Of course, buying on dips for stocks that have already surged higher makes sense. However, some tech stocks have been sideways to lower but have a promising growth outlook.
Let’s talk about three emerging tech companies to buy and hold.
Amdocs Limited (DOX)
Amdocs (NASDAQ:DOX) stock is among the emerging tech companies to buy for long-term value creation. At a forward price-earnings ratio of 15.9, DOX stock looks undervalued. Further, the stock provides an attractive dividend yield of 1.86%.
As an overview, Amdocs provides software and services to telecom and media companies globally. Last year, the company clocked revenue of $4.58 billion, with 75% recurring revenue. It’s worth noting that Amdocs is present in 90 countries, and the addressable market is significant. The company believes that the total serviceable market is likely to be worth $57 billion by 2025.
An important point to note is that Amdocs has guided for a free cash flow of $700 million for the year. With growth visibility and recurring revenue, I expect FCF to swell in the coming years. Therefore, DOX stock is positioned for sustained value creation through organic and inorganic growth.
CrowdStrike Holdings (CRWD)
CrowdStrike (NASDAQ:CRWD) stock has been subdued in the last few quarters. However, business developments have remained positive, and I am bullish on this potential tech giant. The company provides security solutions that include corporate endpoint security, cloud security, managed security services, security, and IT operations.
For Q1 2023, CrowdStrike reported revenue growth of 42% on a year-on-year basis to $692.6 million. The company reported cash and short-term investments of $2.93 billion for the same period. Additionally, CrowdStrike is on track to deliver operating cash flows of $1 billion.
There are two important observations. First, the company is on a high-growth trajectory, and as subscription revenue swells, growth is likely to remain robust. Furthermore, CrowdStrike has high financial flexibility for organic and acquisition-driven growth.
It was recently reported that the company is close to acquiring Bionic.AI for $200 to $300 million. The latter is a security posture management platform for cloud services. Acquisition of innovation-driven companies will likely ensure healthy growth in the coming years.
Arista Networks (ANET)
As I write, Arista Networks (NYSE:ANET) is higher by 13.5% in pre-market trade. The reason is strong quarterly numbers and a bright outlook. I believe ANET stock is attractively valued at a forward price-earnings ratio of 26.5 times.
As an overview, the company is focused on software-driven, cognitive cloud networking. For Q2 2023, the company reported revenue of $1.46 billion, which was higher by 39% on a year-on-year basis. It’s important to note that the company delivered an operating cash flow of $808 million for the first half of 2023. With an annualized OCF potential of $1.6 billion, the company is positioned to be a value creator.
In February, Arista showcased next-generation systems and optics for cloud, internet service providers, and enterprise networks. The company is also delivering network-as-a-service for healthcare markets. The key point is that the target industries have a promising growth outlook, and Arista is positioned to benefit.
On the date of publication, Faisal Humayun did not hold (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.
