We recently published a list of 10 Best Affordable Tech Stocks to Buy According to Analysts. In this article, we are going to take a look at where Kyndryl Holdings, Inc. (NYSE:KD) stands against the other affordable tech stocks.

Undoubtedly, technology continues to change rapidly. In a tech-rich world, investors and analysts have a lot to pick from. As we all know, Artificial Intelligence (Al) dominated conversations over the last couple of years.

US stocks have seen some revival from their recent lows as the economic data has provided confidence about the health of the US economy. The Technology Select Sector SPDR Fund has seen a run-up of over ~19% on a YTD basis. Much of this rally in the IT space was led by optimism about AI technology. However, some hints about the rate cuts also supported the broader increase.

As per the latest data, the global Al market has been pegged at $196.63 billion (according to estimates from Grand View Research). This exhibits a rise of ~$60 billion since 2022. This growth stemmed from increased practical use cases of Al technology, ranging from content creation to self-driving cars.

Growth of Artificial Intelligence (AI) and Extended Reality (XR)

Al should continue to advance rapidly, with an improved focus on areas including natural language processing, computer vision, and generative Al. PWC reported that ~45% of total economic gains by 2030 should come from product enhancements, fueling consumer demand. Al is expected to drive greater product variety, with higher personalization, attractiveness, and affordability. The greatest economic gains from Al are expected to be in China (26% boost to GDP in 2030) and North America (14.5% boost). This equates to $10.7 trillion and will account for ~70% of the global economic impact.

Extended Reality (XR), which is known as the convergence of Virtual Reality (VR), Augmented Reality (AR), and Mixed Reality (MR), is expected to create immersive experiences throughout industries, mainly in gaming and entertainment. The increased use of smartphones, higher adoption of smart electronic devices, and deployments of 5G technology are expected to act as key growth drivers of the extended reality market in North America.

Notably, media companies have explored the possibility of using XR technology as a medium to tell stories and as an advertising outlet for numerous years. The interactive ad campaigns and product visualization components of XR should help drive growth in the advertising industry.

Cybersecurity Technology – Need and Emergence

The cybersecurity technology market has been pegged at US$190.4 billion in 2023, and this should touch US$298.5 billion in 2028 (according to data from Markets and Markets). This represents a CAGR of ~9.4%. Such healthy growth is expected to stem from the increased sophistication of cyber threats, the expansion of the digital landscape, and the pressing need for data protection. Therefore, cybersecurity solutions like data encryption, firewalls, and antivirus software are being used to protect and transfer data.

Technologies ranging from AI, machine learning (ML), and automation are being widely used in cybersecurity technology to improve threat detection and predictive analytics. The higher demand for industrial robots together with the growing adoption of managed security services should help create new opportunities in the market. Also, robotic cybersecurity solutions tend to protect endpoints and connectivity stacks help in preventing data leaks and asset downtimes.

Trends in Robotics

Robotic automation has seen wide acceptance throughout industries because of the introduction of digitization and the Industry 4.0 revolution. As a result, there has been a drastic change in traditional production and operational procedures. In Industry 4.0, smart factories are developed in a way that the machines can collaborate with human workers and other machines in real-time. This is done by using cloud computing, IoT, and cyber-physical systems.

The emergence of numerous techniques focused on production control and the introduction of automation solutions continue to make the key components of present production improvement policies. Apart from this, the awareness of industrial robots led to their deployment across manufacturing and healthcare industries. Moreover, demand is majorly driven by higher labor charges, which has prompted manufacturers to replace human labor with machines. Notably, Asia and Europe are tagged as the key growth regions of the world.

Growth in smart factories or smart manufacturing is expected to stem from rapid digitalization across varied industries and higher demand for industrial automation. A further factor that is expected to support growth over the next few years is the extensive use of manufacturing execution systems (MES) along with sophisticated data models for process-specific operations. The market for smart factories continues to see traction due to the increased use of reconditioned industrial robots and radio frequency identification (RFID) systems.

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Kyndryl Holdings, Inc. (NYSE:KD)

Forward P/E as of 23 August: 11.03x

Upside Potential: 31.58%

Expected EPS Growth This Year: Over 100%

Kyndryl Holdings, Inc. (NYSE:KD) is a technology services and infrastructure services provider. It offers advisory, implementation, and managed services throughout a range of technology domains to help customers manage and modernize enterprise IT environments.

Kyndryl Holdings, Inc. (NYSE:KD) has existing infrastructure services strengths which were established over the years when it was part of the IBM Global Technology Services (GTS) business unit. The company is pulling forward its timing of returning to revenue growth. It now aims to deliver positive revenue growth in 4Q 2025. This growth is expected to stem from its optimism about AI adoption.

Kyndryl Holdings, Inc. (NYSE:KD) tapped into the AI boom by offering consulting services and tech support for enterprise customers wanting to put AI tools to proper use. Therefore, the company’s services are supported by a significant amount of operating data and its machine learning tools.

Next, the company is letting go of low-margin contracts. These were inherited as a result of a spin-off from International Business Machines Corporation (NYSE:IBM). This should help widen the profit margins as the revenue gets into the sustained-growth mode.

Despite working in a capital-intensive industry, Kyndryl Holdings, Inc. (NYSE:KD) demonstrates characteristics of a resilient business. It enjoys predictable revenue from long-term contracts, customer loyalty, and the capability to pass on inflationary costs.

Analysts at Oppenheimer initiated coverage on the shares of Kyndryl Holdings, Inc. (NYSE:KD) on 27^th June. They gave an “Outperform” rating and a price target of $33.00. The number of hedge funds in Insider Monkey’s database owning stakes in Kyndryl Holdings, Inc. (NYSE:KD) increased to 36 in Q2 2024 as compared to 31 in the preceding quarter.

Tourlite Capital Management, an investment management firm, released its fourth quarter 2023 investor letter. Here is what the fund said:

“Kyndryl Holdings, Inc. (NYSE:KD): Despite making strong progress in its post spin-off initiatives and receiving multiple sellside upgrades, we believe Kyndryl remains undervalued. Current gross margins are significantly below normalized levels, and a significant portion of their new high-margin signings are still in backlog. Over the next two years, we anticipate high-margin signings to comprise over 60% of revenue, leading to incremental gross margins of approximately 4%. While operating in a capital-intensive industry, Kyndryl exhibits characteristics of a resilient business: predictable revenue from long-term contracts (>5 years), customer stickiness, and the ability to pass on inflationary costs. There remains ongoing work to address a sizable unprofitable account.”

Overall KD ranks 5th on our list of the best affordable tech stocks to buy according to analysts. While we acknowledge the potential of KD as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than KD 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.