We recently published a list of 10 Best Tech Stocks to Invest In On the Dip. In this article, we are going to take a look at where Axcelis Technologies, Inc. (NASDAQ:ACLS) stands against other best tech stocks to invest in on the dip.
How’s The Tech Sector Performing in Q3 2024?
Dan Romanoff, a senior equity research analyst at Morningstar provided insights into the current state of the technology sector, on October 1st, 2024. His analysis highlights significant challenges and opportunities for the industry. Romanoff mentioned that after a robust start to 2024, the tech sector experienced a slump in the third quarter. Despite this downturn, software and services companies have continued to report solid quarterly results, even as their stock prices have remained relatively flat. Semiconductor firms, while showing potential for recovery, are currently dragging down overall sector performance.
While discussing the sector-wise ranking of the US stock market based on the Q3 earning season, Romanoff pointed out that the technology sector has been the second-best-performing sector over the past year but ranks as the second-worst performer in the most recent quarter. Romanoff emphasizes that despite these fluctuations, there are positive long-term trends that could benefit the industry. He expressed confidence in several long-term growth drivers within technology, including cloud computing, artificial intelligence, and the expansion of semiconductor demand. He mentioned that these factors are expected to sustain growth in the sector even amidst short-term challenges.
Moreover, according to Romanoff, the Morningstar US Technology Index has risen by 32% over the past twelve months, outperforming the broader US equity market’s 24% gain. He notes that while the median US technology stock is fairly valued with a modest margin of safety, the sector trades at a slight premium on a market-weighted basis. He identifies semiconductors and hardware as being overvalued compared to software, which appears more attractive at present.
READ ALSO: 10 Best Small-Cap Stocks Ready To Explode and 10 Cheap NASDAQ Stocks To Invest In Now.
Romanoff also pointed out that generative AI is a significant force within technology. Companies are increasingly integrating next-generation AI capabilities into their products and services. This trend is particularly evident among cloud providers and semiconductor manufacturers. Despite some recent stock pullbacks for Nvidia, Romanoff believes there are still substantial investment opportunities in generative AI beyond just major players. He mentioned that he sees 34% growth in Gen AI Networking equipment spending through 2028. Romanoff also pointed out that the usage of chips and networking gear has grown together from 2022 to 2024 and he expects the trend to continue till 2028.
Our Methodology
To curate the list of the 10 best tech stocks to invest in on the dip, we used the Finviz stock screener and CNN. Using the screener we shortlisted technology stocks that were down at least 25% on a year-t0-date basis, but analysts see a more than 25% upside. Once we had an aggregated list of the tech stocks fitting our criteria, next we cross-checked their analyst upside potential from CNN. Lastly, we ranked these stocks in the ascending order of the analyst upside potential. Please note that the data was collected on November 25, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of an engineer working on precision semiconductor chip fabrication.
Axcelis Technologies, Inc. (NASDAQ:ACLS)
Share Price: $77.40
Year-To-Date Performance: -37.94%
Analyst Upside Potential: 51.75%
Axcelis Technologies, Inc. (NASDAQ:ACLS) is another technology company that specializes in designing, manufacturing, and servicing equipment used in the production of semiconductor chips.
One of the key products made by the company includes machines called ion implanters, which are essential for adding specific materials (dopants) into semiconductor wafers. The Ion implanters can be tailored for various needs including high energy, high current, and medium current depending on the requirement. In addition, it also provides maintenance services, spare parts, equipment upgrades, and consumer training services.
Purion series is one of their flagship products, which is designed to enhance chip manufacturing efficiency. During the third quarter of fiscal 2024, Axcelis Technologies, Inc. (NASDAQ:ACLS) reported revenue of $256.6 million, slightly up from the previous quarter’s $256.5 million. The revenue came from two main segments including, $201.1 million from systems sales and $55.5 million from consumables, spares, and services (CS&I). Management expects the CS&I segment to grow steadily as the company’s installed base increases, providing ongoing revenue and profitability.
China remains one of the significant markets for Axcelis Technologies, Inc. (NASDAQ:ACLS) and accounted for around 71% of total system sales, driven by demand in the image sensor market for smartphones. However, management anticipates a decline in revenue from China in the fourth quarter and early 2025 due to customers adjusting to previously built capacity.
Middle Coast Investing stated the following regarding Axcelis Technologies, Inc. (NASDAQ:ACLS) in its Q3 2024 investor letter:
“Axcelis Technologies, Inc. (NASDAQ:ACLS), the semiconductor equipment maker we own in most accounts, is also in transition. Demand for electric vehicles and hybrids has slowed, while demand for memory chips has not yet picked up. Caught in between these cycles, its shares sold off heavily this quarter, and as one of our biggest positions, that hurt our results. It is also a company with a great balance sheet, that has gained share in its sector, and that is exposed to areas of our economy that should grow for years, all while priced relatively cheaply. Micron’s earnings at the end of the quarter suggested the memory recovery is at hand.”
Overall, ACLS ranks 7th on our list of best tech stocks to invest in on the dip. While we acknowledge the potential of ACLS to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ACLS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.