The Magnificent Seven are a few of essentially probably the most dominant and profitable businesses on the planet. But these stocks command high valuations and multitrillion-dollar market caps. Investors searching for tomorrow’s standout performers should look for more reasonably valued firms.
Micron Technology (NASDAQ: MU) and Tencent (OTC: TCEHY) are two leading tech firms which is more likely to be beginning to see improving growth. Importantly, these two stocks trade at bargain price-to-earnings (P/E) ratios that may lead on on to superior returns over the subsequent few years. Let’s discover more about them.
1. Micron Technology
Micron is a primary supplier of memory and solid-state storage solutions and is seeing a sturdy rebound in revenue and earnings. Investors anticipate a recovery, which helped push the replenish 91% over the past 12 months. Nonetheless the stock still trades at a low forward P/E that undervalues the tremendous demand starting to return from AI servers.
Micron reported a revenue increase of 57% 12 months over 12 months and a rise of 23% over the previous quarter. The corporate supplies products for smartphones and PCs, nevertheless the demand coming from artificial intelligence (AI) servers is coming in stronger than expected.
A key consider analyzing Micron’s business is the supply and demand for memory products, that are liable to cost swings that can impact revenue and profitability. On that note, the demand from AI servers is causing a ripple across the memory market that’s tightening supply and pushing up prices. In consequence, Micron turned a year-ago loss right right right into a profit last quarter.
Micron sees the general demand for servers getting stronger contained in the second half of calendar 2024. This implies Micron is positioned for a full 12 months of data center growth in 2025.
While the stock is hitting recent highs, it still trades at a low forward P/E ratio of seven based on Wall Street’s earnings estimates this 12 months. Be aware of, Micron has historically traded at a low P/E as a consequence of the cyclical nature of its business, nevertheless it’s clearly going to be a beneficiary of the AI spending increase by data centers over the subsequent 12 months. The upswing in demand that’s underway spells more upside.
2. Tencent
A slow economy in China has weighed on shares of leading web firms. Tencent just isn’t any exception. Sluggish revenue growth has sent the stock tumbling well off its previous peak, but that’s an incredibly profitable business with leading positions in video games and entertainment offerings. It won’t stay down long.
Tencent is already turning the corner. Total revenue grew 7% 12 months over 12 months contained in the last quarter. While revenues from its social networks and games were barely down, double-digit growth from internet marketing and fintech services was accountable for the year-over-year revenue increase.
Importantly, Tencent’s operating profit soared 35% 12 months over 12 months. Management’s effort to handle costs down and squeeze more profit out of the business is a catalyst for the stock.
Tencent is contained in the business of providing consumer services that reach an unlimited base of users, which it monetizes through subscriptions, promoting, or in-app purchases. Its $24 billion in free money flow reflects not only a lucrative strategy but in addition to how popular its games and entertainment offerings are in China. Its WeChat app reaches over 1.3 billion monthly energetic users.
The shares trade at a price-to-free money flow ratio of 16.7 — a bargain for a primary tech and entertainment company. Management seems to assume so, too. The corporate has doubled its share repurchases over the past 12 months.
Given Tencent’s leading market position in gaming, mobile payments, and entertainment services, and its growing free money flows, investors should expect the stock to be price lots more in five years.
Must you invest $1,000 in Micron Technology immediately?
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John Ballard has positions in Tencent. The Motley Idiot has positions in and recommends Tencent. The Motley Idiot has a disclosure policy.
Forget the “Magnificent Seven.” Here Are 2 Unbelievably Low-cost Tech Stocks to Buy Hand Over Fist. was originally published by The Motley Idiot