We recently published a list of 10 Best Affordable Tech Stocks To Invest In Now. In this article, we are going to take a look at where Seagate Technology Holdings plc (NASDAQ:STX) stands against the other best affordable tech stocks to invest in now.
What’s Happening in the Technology Sector?
The US tech stocks have recently faced significant pressure, contributing to a decline in major stock indexes amid ongoing discussions about tariffs. Semiconductors is one of the segments facing a downturn. Jeff deGraaf, Renaissance Macro Research chairman, joined CNBC on November 17 to talk about the state of semiconductors. deGraaf thinks that the rally as it stands today is somewhat overbought internally. This means that while the overall market may be experiencing upward movement, there are underlying signs that it may not be sustainable. An overbought condition typically indicates that asset prices have risen too quickly and may be due for a correction. However, deGraaf also mentioned that the current market is a trend market, not a momentum market, which suggests price movements are driven by broader economic trends and fundamental factors rather than short-term speculative trading. He notes that after the recent elections, there was no significant change in market momentum. This stability reinforces his view that the market has achieved escape velocity, indicating that it is positioned to continue its upward trend despite potential challenges.
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He mentioned that the market is still tilted towards cyclical rather than defensive stocks. However, the situation is tricky as semiconductors are experiencing a downturn, which is a huge cyclical industry group. While the semiconductors have been down the software sector has been up on a relative basis. deGraaf noted that he wants to rotate out semiconductors broadly. While elaborating further he mentioned that his statement is based on relative performance, which is very crucial from an investment perspective. He added that except for a few names the semis have the worst momentum and long-term trend strength in the broad market. deGraaf pointed out that NVIDIA has been an exception to its group let alone the greater market, and for that reason, he also wants to avoid the semiconductor giant and rotate out of semis broadly.
Lastly, he pointed out the software group, saying that a lot of software names are improving and he thinks it makes sense to reallocate dollars to software companies as they have some good momentum.
Moreover, in one of our recent pieces, titled “10 Most Promising New Technology Stocks According to Hedge Funds“, we discussed how AI application across various sectors is expected to boost technology IPOs during the year. Here’s an excerpt from the article:
After a prolonged slump, the technology IPO is experiencing a revival in 2024, particularly among companies leveraging artificial intelligence. According to a July 10 report by Morgan Stanley, the firm’s bankers predict to see at least 10 to 15 tech IPOs this year, driven by the growing interest in AI applications across various sectors, especially within technology and healthcare.
According to Colin Stewart, Morgan Stanley’s Global Head of Technology Equity Capital Markets, understanding a company’s role in the evolving AI landscape is crucial for its attractiveness to investors. Companies that demonstrate how AI can transform enterprise operations or customer interactions are more likely to succeed in going public.
The past few years saw a significant decline in IPO activity due to high interest rates and lower company valuations. Many tech firms opted to delay their offerings as capital became more expensive. However, as the market adjusts to these higher rates, companies are realizing they cannot postpone their IPOs indefinitely. The need for liquidity and public financing is prompting many large private firms to consider going public again.
AI has been a revolutionary addition to the healthcare segment as well. Companies are increasingly focused on harnessing vast amounts of data to drive improvements in patient care and medical research. By developing systems that can analyze complex datasets such as electronic health records, imaging data, and genomic information. These firms are positioning themselves as essential players in the healthcare ecosystem. The ability to generate proprietary datasets that power AI applications is becoming a key factor in attracting investor interest.
A technician configuring a network-attached storage drive.
Our Methodology
To compile the list of the 10 best affordable tech stocks to invest in now, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we shortlisted technology stocks trading below the Forward P/E of 15 and whose earnings are expected to grow during the year. Next, we sorted our initial list by market capitalization and cross-checked the Forward P/E of each stock from Seeking Alpha and earnings growth from Yahoo Finance. Lastly, we ranked the stocks in ascending order of the number of hedge fund holders as per Insider Monkey’s database for Q3 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).
Seagate Technology Holdings plc (NASDAQ:STX)
Forward P/E Ratio: 13.63
Earnings Growth This Year: 478.00%
Number of Hedge Fund Holders: 10
Seagate Technology Holdings plc (NASDAQ:STX) is a technology company specializing in data storage solutions. It manufactures Hard Disk Drives (HDD), Solid State Drives (SDD), Hybrid Drives, and Cloud storage solutions.
The company plays a crucial role in powering the AI revolution and the cloud computing industry through innovative storage solutions. For instance, its HDDs are particularly well-suited for cloud environments, they account for nearly 90% of bytes stored in public cloud environments. Moreover, its Heat Assisted Magnetic Recording (HAMR) is a major development for nearline drives, which are a type of data storage solution that serves as an intermediary between online and offline storage.
Management noted that its first-quarter revenue for fiscal 2025 was driven by robust demand in the nearline cloud segment. Seagate Technology Holdings plc (NASDAQ:STX) posted a 49% year-over-year increase in revenue to reach $2.17 billion, with Non-GAAP gross margins at 33.3%, reflecting one of the highest margins in over a decade.
According to a recent report by Goldman Sachs, cloud computing sales can go up to $2 trillion by the end of this decade. Seagate Technology Holdings plc (NASDAQ:STX) stands at an indispensable position within the industry due to its storage solutions. Looking ahead management expects the second quarter revenue to be around $2.30 billion, driven by continued demand for its HDD technology. It is one of the best affordable tech stocks to invest in now.
ClearBridge Aggressive Growth Strategy made the following comment about Seagate Technology Holdings plc (NASDAQ:STX) in its Q4 2022 investor letter:
“Our transactions were relatively limited in the fourth quarter, with a number of sales and trims driven by tax management. We cut our cyclical technology exposure with trims to hard disk drive makers Western Digital (WDC) and Seagate Technology Holdings plc (NASDAQ:STX), which have higher than average financial leverage for our portfolio and are facing a challenging demand environment.”
Overall, STX ranks 10th on our list of best affordable tech stocks to invest in now. While we acknowledge the potential of STX 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 STX 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.