Yahoo Finance Top 5 Nasdaq Composite Laggards of 2024 Likely to Gather Pace
The Nasdaq Composite is back in action after an astonishing rally in 2023. The tech-heavy index soared 43.4%, recording its best year since 2020. The index’s smooth rally suffered a setback in April. However, Nasdaq Composite has regained momentum in May.
Year to date, the Nasdaq Composite is up 14.6% compared with an 11.9% gain of the S&P 500 and 3.6% of the Dow. On May 23, the Nasdaq Composite recorded an all-time high of 16,996.39. The next day, the index posted an all-time closing high of 16,920.79.
Explosion of Generative AI
The tech rally in 2023 was led by a massive thrust toward AI, especially generative AI. Some financial and technology experts believe that AI is much-hyped and may lead to a bubble. We believe that the AI-space is yet to unfold in the U.S. and international markets. Once that happens, it will generate huge business opportunities for technology companies to produce high-end products.
Moreover, the robust fundamentals of the U.S. economy reduce concerns of a near-term recession. Additionally, the blockbuster earnings in the last reported quarter of NVIDIA — the largest global manufacturer of generative AI chipsets — raised expectations of investors that the market for AI will show strong growth in the coming decade.
Taiwanese chipmaker Taiwan Semiconductor Manufacturing Co Ltd. — the world's largest contract chipmaker — recently projected more than 20% revenue growth in 2024 on booming demand for high-end chips used in AI applications even as the broader industry faces weak smartphone and electric vehicle sales.
Smart Devices Aiding Computing Demand
Smart devices need computing and learning capabilities to perform face detection, image recognition and video analytics capabilities. These require high processing power, speed and memory. They also need low power consumption, and better graphic processors and solutions, which bode well for the semiconductor industry.
The World Semiconductor Trade Statistics (“WSTS”) projects robust growth in 2024, with an estimated surge of 13.1% annually. As estimated by WSTS, global semiconductor sales should reach $588.4 billion in 2024.
Technology research and advisory firm IDC predicts 20.2% year-over-year growth in semiconductor sales in 2024, driven by demand from AI servers and end-point device manufacturers.
Grand View Research estimates that annual spending across AI hardware, software, and services will see massive growth of 820%, from $197 billion in 2023 to $1.8 trillion in 2030, implying an annual growth rate of 37% over that time period.
A Few Nasdaq Composite Laggers
Despite a dream run of the tech-laden index, a few large-cap stocks have provided negative returns year to date. A handful of those stocks currently carry a favorable Zacks Rank. These stocks are likely to regain momentum in 2024 as steadily dwindling inflation coupled with a low interest rate regime are expected to help reviving their businesses.
Our Top Picks
We have narrowed our search to five Nasdaq Composite listed laggards of year to date with strong potential for the rest of 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Datadog Inc. DDOG has been benefiting from strength in customer demand for offerings in modern observability, cloud security, software delivery and cloud service management. DDOG had 3,340 customers with an annual run rate of $100K or more at the end of the last reported quarter.
DDOG’s dollar-based retention rate was in the mid-110s in the first quarter as customers increased their usage and adopted more products. Contributions from a solid cloud partner base, including Google Cloud, Microsoft Azure and Amazon Web Services, remain a key growth driver of DDOG besides an expanding portfolio.
Datadog has an expected revenue and earnings growth rate of 22% and 16.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last 30 days.
Palo Alto Networks Inc. PANW has been benefiting from continuous deal wins and the increasing adoption of its next-generation security platforms, attributable to the rise in the hybrid work environment and the heightened need for stronger security.
PANW’s strong back-to-back quarterly performances reflect its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy. The normalization of the supply chain is also aiding growth across PANW’s Products, Services and Subscription segments.
Palo Alto Networks has an expected revenue and earnings growth rate of 16.1% and 23.9%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Roper Technologies Inc. ROP has been benefiting from strength across all its segments. Momentum across the Deltek, Vertafore, Frontline and Aderant businesses is aiding ROP’s Application Software unit.
Strong momentum in the DAT & Loadlink businesses and excellent bookings in the iPipeline business are boosting ROP’s Network Software unit’s performance. Strength across the Neptune and Verathon businesses augurs well for the Technology Enabled Products unit. ROP’s bullish forecast for 2024 sparked optimism.
Roper Technologies has an expected revenue and earnings growth rate of 12% and 8.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last seven days.
Intuit Inc. INTU has been benefiting from strong growth in revenues driven by the Online and Desktop Ecosystem business segments. Strong momentum in international online revenues and solid professional tax revenues were significant growth boosters.
INTU’s TurboTax Live offering is also driving growth in the Consumer tax business. Momentum in QuickBooks Capital remains positive. Moreover, INTU’s strategy of shifting its business to a cloud-based subscription model will help generate stable revenues over the long run. Additionally, growth in the Desktop ecosystem helped INTU boost its revenues.
Intuit has an expected revenue and earnings growth rate of 11.6% and 14%, respectively, for the current year (ending July 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 60 days.
Bentley Systems Inc. BSY provides infrastructure engineering software solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. BSY offers open modeling and open simulation applications for infrastructure design integration.
BSY’s offerings include MicroStation, OpenRoads, OpenRail, OpenPlant, OpenBuildings, OpenBridge, OpenSite, OpenFlows, STAAD and RAM, SACS, MOSES, AutoPIPE, SITEOPS, CUBE, DYNAMEQ, EMME, and LEGION, and geoprofessional applications for modeling and simulation of near and deep subsurface conditions.
Bentley Systems has expected revenue and earnings growth rates of 11.1% and 16.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5% over the last 30 days.
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