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The Technology Services space has witnessed healthy growth since the pandemic, fueled by the swift adoption of remote work, accelerating the global digital transition. Technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) have propelled industry expansion. Also, increased concerns about data security have acted as a stimulus for the industry's growth.AppLovin, SPX Technologies, Inc. and GigaCloud Technology Inc. are poised to benefit from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware, and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions, and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems.
This industry caters to consumer and business markets and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions, and technology-enabled financial services for consumers and small business owners.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with the demand for services remaining healthy over time. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark in 46 out of 48 months.
Technological Advancement Takes Center Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and AI. The United States, a significant player in the IT sector, is positioned for growth on the widespread adoption of smart technologies and increased investments in security. Companies are increasingly adopting generative AI, ML, blockchain and data science to gain a competitive advantage. According to Bloomberg, the worldwide generative AI is expected to grow, seeing a 42% CAGR over the next 10 years, and become a $1.3-trillion market by 2032.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #68. This rank places it in the top 27% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry's recent stock market performance and current valuation.
Industry's Price Performance
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has grown 41.3% over this period compared with the 13.6% rise of the broader sector and the 15.6% rally of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 56.2X compared with the S&P 500's 14.12X and the sector's 28X.
Over the past five years, the industry has traded as high as 80.91X and as low as 20.48X, with the median being 54.58X.
3 Technology Services Stocks Moving Ahead of the Pack
Here, we have presented three technology stocks expected to reap the benefits of a growing market.
AppLovin: This software-based platform builder for advertisers is currently riding on its AI implementation, one of the most powerful systems that the world has ever seen in this space.
The company has witnessed success after it rolled out AXON 2 across a variety of non-gaming companies growing in its platform. Considering that the non-gaming app space is growing faster than the gaming app space, APP is posed to reap benefits.
APP currently flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its 2024 bottom line has increased 19.8% in the past 60 days. Earnings are expected to grow more than 100% year over year in 2024. APPshares have gained 89.4% in the past six months.
SPX Technologies: This infrastructure equipment supplier's top line is benefitting from acquisitions, including TAMCO and Ingenia in its cooling platform, and ASPEQ in its heating platform.
The company's HVAC segment's initiatives are assisting to expand the addressable market of SPXC by broadening a range of application-specific solutions for different price points.
SPXC presently sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2024 bottom line has increased 7% in the past 60 days. Earnings are expected to rise 24.4% year over year in 2024. SPXC shares have gained 44.1% in the past six months.
GigaCloud: This end-to-end B2B e-commerce solutions provider's top line is gaining from the surge in revenues from the sale of inventory and through third-party e-commerce channels.
GCT currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for 2024 EPS has increased 9.1% in the past 60 days. Earnings are expected to rise 41.3% year over year in 2024. GCTshares have gained more than 100% in the past six months.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights AppLovin, SPX Technologies and GigaCloud Technology
For Immediate Release
Chicago, IL – June 17, 2024 – Today, Zacks Equity Research discusses AppLovin (APP - Free Report) , SPX Technologies, Inc. (SPXC - Free Report) and GigaCloud Technology Inc. (GCT - Free Report) .
Industry: Tech Services
Link: https://www.zacks.com/commentary/2288378/3-stocks-to-buy-from-the-prospering-technology-services-market
The Technology Services space has witnessed healthy growth since the pandemic, fueled by the swift adoption of remote work, accelerating the global digital transition. Technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) have propelled industry expansion. Also, increased concerns about data security have acted as a stimulus for the industry's growth.AppLovin, SPX Technologies, Inc. and GigaCloud Technology Inc. are poised to benefit from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware, and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions, and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems.
This industry caters to consumer and business markets and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions, and technology-enabled financial services for consumers and small business owners.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with the demand for services remaining healthy over time. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends.
Economic Recovery: The sector is a major beneficiary of the broader economy and service activities. According to the Bureau of Economic Analysis, GDP grew at an annual rate of 2.5% in 2023 compared with 1.9% growth in 2022. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark in 46 out of 48 months.
Technological Advancement Takes Center Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and AI. The United States, a significant player in the IT sector, is positioned for growth on the widespread adoption of smart technologies and increased investments in security. Companies are increasingly adopting generative AI, ML, blockchain and data science to gain a competitive advantage. According to Bloomberg, the worldwide generative AI is expected to grow, seeing a 42% CAGR over the next 10 years, and become a $1.3-trillion market by 2032.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #68. This rank places it in the top 27% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry's recent stock market performance and current valuation.
Industry's Price Performance
The Zacks Technology Services industry has outperformed the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has grown 41.3% over this period compared with the 13.6% rise of the broader sector and the 15.6% rally of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 56.2X compared with the S&P 500's 14.12X and the sector's 28X.
Over the past five years, the industry has traded as high as 80.91X and as low as 20.48X, with the median being 54.58X.
3 Technology Services Stocks Moving Ahead of the Pack
Here, we have presented three technology stocks expected to reap the benefits of a growing market.
AppLovin: This software-based platform builder for advertisers is currently riding on its AI implementation, one of the most powerful systems that the world has ever seen in this space.
The company has witnessed success after it rolled out AXON 2 across a variety of non-gaming companies growing in its platform. Considering that the non-gaming app space is growing faster than the gaming app space, APP is posed to reap benefits.
APP currently flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its 2024 bottom line has increased 19.8% in the past 60 days. Earnings are expected to grow more than 100% year over year in 2024. APPshares have gained 89.4% in the past six months.
You can see the complete list of today's Zacks #1 Rank stocks here.
SPX Technologies: This infrastructure equipment supplier's top line is benefitting from acquisitions, including TAMCO and Ingenia in its cooling platform, and ASPEQ in its heating platform.
The company's HVAC segment's initiatives are assisting to expand the addressable market of SPXC by broadening a range of application-specific solutions for different price points.
SPXC presently sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2024 bottom line has increased 7% in the past 60 days. Earnings are expected to rise 24.4% year over year in 2024. SPXC shares have gained 44.1% in the past six months.
GigaCloud: This end-to-end B2B e-commerce solutions provider's top line is gaining from the surge in revenues from the sale of inventory and through third-party e-commerce channels.
GCT currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for 2024 EPS has increased 9.1% in the past 60 days. Earnings are expected to rise 41.3% year over year in 2024. GCTshares have gained more than 100% in the past six months.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.