Today, we discuss three underappreciated tech stocks in a year when the technology sector has emerged as the powerhouse of 2024. The Invesco QQQ Trust ETF (NYSEARCA:QQQ), which tracks the Nasdaq-100, has surged over 16% year-to-date (YTD). This remarkable performance reflects the tech sector’s ongoing innovation, including developments in the artificial intelligence (AI) space. Recent robust earnings announced by many tech companies have also helped investor sentiment. While tech behemoths dominate headlines and market caps, a select few “underappreciated” tech stocks remain under the radar, their true potential waiting to be unlocked.
These underappreciated tech stocks, often obscured by market noise or temporary setbacks, possess a perfect combination of talent, technology and market opportunities to become tomorrow’s industry leaders. By identifying these hidden gems, savvy investors can gain a significant market edge and substantial returns. Therefore, in this article, we’ll explore three underappreciated tech stocks with massive long-term potential.
Datadog (DDOG)
First up on our list of underappreciated tech stocks is the security platform Datadog (NASDAQ:DDOG), a prominent player in the cloud monitoring space. Its platform helps businesses gain real-time insights into the performance and health of their IT infrastructure. This enables IT teams to proactively identify and troubleshoot issues, optimizing overall IT efficiency.
In early May, Datadog released financial results for the first quarter of 2024. Total revenue jumped 27% YOY to $611 million, surpassing the high end of their guidance range. Adjusted net income and diluted earnings per share (EPS) both surged over 90%, to $157.6 million and 44 cents, respectively. Notably, the company added 3,340 customers with an annual recurring revenue (ARR) of $100,000 or more, marking a 15% increase YOY.
Management sees strong long-term trends in cloud migration and digital transformation, which are driving demand for their platform. In addition, Datadog has recently enhanced its Artificial Intelligence for IT Operations (AIOps) suite with the launch of IT Event Management. This new feature leverages AI-powered event correlation to help teams reduce alert fatigue and efficiently resolve issues.
Despite a 2% YTD decline in DDOG stock, its current valuation appears rich at 70.9 times forward earnings and 19 times sales. However, Wall Street remains optimistic on DDOG shares. Analysts have set a 12-month price target of $148.6 for DDOG, signaling a potential 24% upside.
Block (SQ)
Financial services and mobile payment company Block (NYSE:SQ) is the next name among our underappreciated tech stocks. Block offers tools, such as Cash App, for in-person and online payments, enhancing transaction efficiency. Additionally, Block provides business banking services and Square Capital for loans and financing.
For the first quarter of 2024, Block reported robust earnings. Total revenues jumped 20% YOY to $5.96 billion. Net income and diluted EPS skyrocketed over 350% to $472 million and 74 cents, respectively. The Cash App segment excelled with a 25% YOY increase in gross profits to $1.26 billion. Management’s raised guidance for full-year 2024, highlighting optimistic outlooks.
In other words, Block has shown strong financial performance and has several strategic initiatives in place to drive future growth and profitability. Recently, Block announced several new platform integrations for food and beverage businesses, partnering with SevenRooms, Restaurant365, and Popmenu. It also introduced machine learning-powered app recommendations to aid product discovery for sellers.
Despite its achievements, a Morgan Stanley (NYSE:MS) downgrade to underweight in April, and concerns over Bitcoin (BTC-USD) investments have led to a 19% YTD decline in SQ stock. As a result, shares are reasonably valued at 19.45x forward earnings and 1.7x sales. Currently, analysts have a 12-month median price target of $93 for SQ stock, implying over 45% potential upside.
Atlassian (TEAM)
Rounding out our discussion of underappreciated tech stocks is the software company Atlassian (NASDAQ:TEAM), known for project management and collaboration tools. Atlassian offers Jira for agile software development, Confluence for knowledge-sharing and collaboration, and Trello, an intuitive visual project management tool.
In late April, TEAM announced strong third quarter 2024 earnings. Revenue surged 30% YOY to $1.19 billion, driven by strong performance in its Cloud and Data Center segments. In addition, net income soared 68.5% to $232.5 million, while adjusted diluted EPS up 65% to 89 cents. April also marked a leadership change, with the co-CEO Scott Farquhar stepping down after 23 years. Yet, Farquhar remains on the board and serves as a special advisor.
Atlassian’s long-term growth strategy includes a continued focus on three large high-growth markets: work management, software development, and service management. Meanwhile, Atlassian has successfully migrated its Server customers to the Cloud with minimal disruption, with increased adoption in higher market segments and improving profitability. Furthermore, the company’s new artificial intelligence tools are enhancing its software platform capabilities.
TEAM stock has declined 34% since January due to uncertainties about executive changes and growth sustainability. Nonetheless, Atlassian’s ongoing product innovation, AI initiatives, and upmarket expansion serve as potential growth catalysts. Currently, TEAM shares change hands at 50 times forward earnings and 10.1 times sales. Finally, analysts have a 12-month price forecast of $228.85 for TEAM, indicating about a 45% potential upside.
On the date of publication, Tezcan Gecgil 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.
