Many tech stocks fell out of favor over the past two years as rising interest rates compressed their valuations and highlighted their financial weaknesses. But hastily retreating from the entire sector could be a mistake, especially since the world's top tech stocks have a solid track record of crushing the market over the long term.
So as this volatile year draws to a close, investors should consider buying these three tech stocks that still look undervalued relative to their growth potential: Uber Technologies (UBER -0.38%), Super Micro Computer (SMCI 8.89%), and CrowdStrike (CRWD 2.03%).
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1. Uber Technologies
Uber is one of the world's largest mobility and food delivery companies. It suffered a slowdown during the pandemic, but it recovered quickly as those headwinds passed. Its gross bookings grew 19% in 2022 and 18% year over year in the first nine months of 2023. As its top-line growth stabilized, its margins expanded as it cut costs, raised its prices, and boosted its take rates (the cut of revenue it retains from each booking).
As a result, Uber's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) turned positive in 2022, and it's remained profitable on a generally accepted accounting principles (GAAP) basis over the past two quarters.
Analysts expect Uber's revenue to grow at a steady compound annual growth rate (CAGR) of 16% from 2022 to 2025. They also expect its adjusted EBITDA to rise at a CAGR of 68%. Those are impressive growth rates for a stock that trades at just 3 times next year's sales and 22 times its adjusted EBITDA. Uber's stock has risen nearly 40% since its IPO in 2019, but it could still have plenty of room to grow as it expands its mobility and food delivery platforms.
2. Super Micro Computer
Super Micro Computer, more commonly known as Supermicro, is one of the world's leading manufacturers of pre-built servers. It didn't gain much attention when it went public in 2007, yet its stock price soared nearly 800% over the past three years.
That growth was driven by its close partnership with Nvidia, which enabled it to provide pre-built artificial intelligence (AI) servers before its larger competitors. The rapid expansion of the AI market lit a fire under its business, and its revenue rose 46% in fiscal 2022 (which ended in June 2022) and 37% in fiscal 2023.
Analysts expect Supermicro's revenue to rise at a CAGR of 22% from fiscal 2023 to fiscal 2026 as it continues to grow its share of the AI server market. They also expect its earnings per share (EPS) to increase at a CAGR of 28%. Those growth rates look impressive, but its stock still looks surprisingly cheap at 18 times this year's earnings.
I believe Supermicro trades at that discount because the market still values it as a legacy server maker. But if the AI market continues to expand, it could be revalued as an AI play instead -- and its valuations should quickly catch up to its growth rates.
3. CrowdStrike
CrowdStrike stands out in the crowded cybersecurity market because it provides all of its endpoint security tools as cloud-based services. That lightweight strategy eliminates the need for on-site appliances, which are generally more expensive, require constant maintenance, and are difficult to scale as a company expands.
CrowdStrike's stock has soared more than 600% since its IPO in 2019, but it could still have plenty of room to run as the cloud-native cybersecurity market grows. It's still locking in new government clients, expanding its AI-driven XDR (extended detection and response platform), and increasing the total number of cloud-based modules used by each customer.
From fiscal 2020 to fiscal 2023 (which ended in January 2023), CrowdStrike's revenue rose at a CAGR of 67%. From fiscal 2023 to fiscal 2026, analysts expect its revenue to continue growing at a CAGR of 30% as its adjusted EBITDA rises at a CAGR of 46%. It's also remained profitable on a GAAP basis for the past three quarters, and analysts expect it to grow its GAAP net income at a CAGR of 133% over the next two years. Those impressive growth rates suggest CrowdStrike could generate even more multibagger gains -- and it still isn't too expensive at 66 times its forward-adjusted earnings.
