The technology sector has never been more dynamic. Companies that don't invest enough in research and development are likely to be forgotten. I'm not just talking about technology companies, I'm talking about companies in all sectors that are failing to adopt new innovations.
recently, Nvidia (NASDAQ:NVDA) grabbed headlines. As the AI market expands, AI stocks continue to be a hot commodity. However, the focus of this column is on lesser-known or under-the-radar technology stocks that aim for multibagger returns.
In terms of growth scale, AI is expected to contribute up to $15.7 trillion to the global economy by 2030. Of that amount, “$6.6 trillion will come from productivity gains and $9.1 trillion from consumption side effects.'' Contributing to this growth includes multiple participants from the technology sector. join. So addressable markets are important and I'm just talking about AI.
Let's discuss three lesser-known technology stocks that have the potential to create significant value.
Arm Holdings (ARM)
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arm holdings (NASDAQ:arm) will go public in September 2023 and is trending up 123% in 6 months. However, since ARM stock is a relatively new public offering, it has not yet received much attention. Additionally, I believe the company will likely create immense value over the next five years.
In general, Arm Holdings develops and licenses central processing unit products and related technologies. Semiconductor companies and original equipment manufacturers are the end users of the company's products.
In Q3 2023, Arm reported revenue of $824 million, a 14% year-over-year (YoY) increase. During the same period, the company shipped 7.7 billion chips. It's worth noting that the company's free cash flow for the trailing twelve months was $724 million. Given the steady growth in license and royalty income, annual FCF is expected to exceed $1 billion over the next 24 months.
An important thing to note is that Arm was focused on general purpose CPUs until 2016. The company currently offers AI-enabled CPUs customized for specific industries. These industries include IoT, consumer electronics, cloud networking, automotive, and mobile. The addressable market will therefore be significant for years to come.
Amdocs Limited (DOX)
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amdocs (NASDAQ:dox) provides software and services to the telecommunications and media industries worldwide. DOX stock has been flat over the past 12 months, trading at an attractive forward price/earnings ratio of 13.7x. Additionally, this stock has a dividend yield of 2.14%. Given its fundamentals and industry growth potential, DOX stock is worth owning for the next five years.
In Q1 2024, Amdocs reported record revenue of $1.25 billion and a 12-month backlog of $4.21 billion. Additionally, the company reiterated its free cash flow outlook for the year at $750 million. It's also worth noting that Amdocs has a $1.1 billion liquidity buffer.
This is important to mention because Amdocs has invested to stay ahead of the curve. The company has also pursued opportunistic acquisitions. As an example, Amdocs is working to accelerate its generative AI strategy. In February, the company expanded its partnerships with: microsoft (NASDAQ:MSFT) Drive generative AI innovation in the communications industry.
Phototronics (PLAB)
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phototronics (NASDAQ:PLAB) are also undervalued technology stocks to buy. Even after rising nearly 75% over the past 12 months, PLAB stock trades at 13 times forward price/earnings. I'd bet on multibagger returns from this stock over a five-year investment horizon.
As an overview, Photronics is a global provider of photomask products and services. These photomasks are used in the production of integrated circuits and flat panel displays. The company also offers electrical and optical components.
For the first quarter of 2024, the company reported revenue growth of $216.3 million, down 2% year over year. However, order rates are improving, which could lead to faster growth. For the second quarter, the company expects sales of $231 million and an operating margin of approximately 28%.
Beyond the numbers, I'm also bullish on the long-term growth prospects. Demand for photomasks will continue to trend upwards due to IoT, 5G, cryptocurrencies, and the integration of chips into consumer products. Furthermore, Photronics is focused on expanding its profit margins, and as cash flow expands, PLAB stock is likely to trend higher.
On the date of publication, Faisal Humayun did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are influenced by InvestorPlace.com. Publication guidelines.
