If picking the top tech stocks with potential was easy, we’d all have a portfolio full of surprising breakout stocks like Nvidia (NASDAQ:NVDA). Unfortunately, it isn’t that easy. But that doesn’t mean finding tech stocks with potential is hard, either.
Today’s economic and interest rate climate means tech stocks with potential aren’t just prioritizing growth at all costs. Instead, tech stocks with potential leverage growth and market share while combining both with prudent financial management. At the same time, each of these three stocks offers unique, company-specific tailwinds set to propel them higher over the coming year.
Trip.com Group (TCOM)
Tourism plays a critical role in China’s economy, and Trip.com Group (NASDAQ:TCOM) is uniquely positioned among tech stocks with potential, benefiting from long-term growth in the sector. After a rough few years, Trip.com is poised to benefit significantly from the end of China’s Zero-Covid policies. Bottom line: 2023’s economic initiatives are expected to lead to a mild cyclical recovery in China in 2024, pushing tourism rates higher.
Trip.com serves as a comprehensive platform for ticketing, hotel bookings and travel planning, catering to over half of China’s tourism market. Before the pandemic, China’s international tourism was on an upward trajectory, with 154.63 million international outbound tourists in 2019. That number plummeted to just 20.33 million in 2020 due to the pandemic. However, the sector has shown signs of recovery; by the first half of 2023, over 40 million tourists had ventured abroad from China. Although these numbers are still well below pre-pandemic figures, the quick rebound following the cessation of the Zero-Covid policy and an anticipated economic turnaround positions Trip.com as a leading contender for this year’s top international tech stock.
Fabrinet (FN)
Fabrinet (NYSE:FN) is firmly within the tech stocks with potential arena, matching Nvidia in terms of AI-driven business focus and remarkable growth, boasting a surge of over 80% in the past year. It’s important to note that Fabrinet is a key supplier to Nvidia, the semiconductor behemoth, playing a crucial role in the competitive race for AI supremacy. While Nvidia and its rivals compete at the forefront of the AI “gold rush,” Fabrinet ensures its profitability by providing essential components needed in the industry, securing its success regardless of the market leader.
The company specializes in producing and supplying optical cables, which are critical for data transmission across various hardware platforms at unparalleled speeds exceeding 800GB per second. These cables are pivotal for the development of machine learning and AI technologies. Remarkably, this particular line of products contributes $500 million to Fabrinet’s revenue, underlining its significance to the company’s financial health. The outlook for Fabrinet’s growth is incredibly strong, with projections suggesting that its operational income could double shortly.
Moreover, with a valuation of just 2.9x sales and 31x earnings, Fabrinet presents an attractive investment opportunity. The global economic environment is improving, and technology firms continue prioritizing AI development. To that end, Fabrinet stands ready to emerge as one of the standout tech stocks with potential in 2024.
Arista Networks (ANET)
Leading analysts from Citi (NYSE:C), Morgan Stanley (NYSE:MS) and Barclays (NYSE:BCS) are identifying Arista Networks (NYSE:ANET) as a standout stock with potential in the AI sector despite it flying under the radar compared to more high-profile tech stocks. That dynamic will likely change in 2024, as the company capitalizes on expanding cloud and AI opportunities. Citi’s Atif Malik particularly emphasized Arista’s potential to benefit from the generative AI megatrend and various early AI-related opportunities.
Arista’s stock experienced stagnation after an earnings report that delivered subdued guidance, causing a temporary dip before a modest recovery last month. The decrease might stem from analysts’ overly optimistic expectations, with a Piper Sandler (NYSE:PIPR) analysis suggesting that ANET needed to achieve “near perfect” earnings to justify an increase in its share price. Despite these challenges, ANET continues to hold promise, especially as investor interest shifts back towards “hard tech” in AI, moving focus away from software solutions and toward companies like Arista with tangible, innovative technologies.
On the date of publication, Jeremy Flint held no positions (directly or indirectly) in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
