ZM - 3 Tech Value Traps That Are Actually Screaming Buys

2024-07-05 13:14:22 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

In the wake of the pandemic, we’re witnessing the emergence of value traps throughout the tech landscape on Wall Street, but there are still many undervalued tech stocks you can buy. The challenges faced by U.S. markets amid the tech stock sell-offs of 2022 and the uneven influence of the generative AI boom have left some tech stocks to trade well below their all-time high values recorded earlier in the decade.

For investors, this means that many tech stocks are priced at significantly more attractive values than only a couple of years ago. However, are they likely to recover their losses? Or continue their decline? This underlines the dichotomy of the value trap.

Value traps refer to the illusion that an investment opportunity is attractively priced because it’s been trading at a far lower value than in the past. This makes stocks appear discounted but doesn’t account for the possibility that they may never return to their former glory.

Despite no guarantees that a value trap can make a market recovery, many tech stocks on Wall Street seek to innovate their way out of their recent hardships and offer plenty of potential for a market recovery. Here are three of the biggest examples of undervalued tech stocks:

Undervalued Tech Stocks: Zoom Video Communications Inc (ZM)

During the pandemic, Zoom Inc (NASDAQ: ZM ) became synonymous with remote collaboration during global lockdowns and offered users the chance to socialize with friends and family at a time when face-to-face contact was impossible.

However, the video communication platform fell behind its competitors in the post-pandemic era, and its stock value tumbled as a result. By the end of Q2 2024, Zoom sat 89.41% adrift of its 2020 peak.

This could make the stock a classic value trap. However, Zoom appears to be an ambitious company backed by strong fundamentals.

The stock’s Q1 2024 earnings of $216.3 million on revenue of $1.14 billion are up 3.2% year-over-year, and non-GAAP earnings of $1.35 per share have weighed in far higher than Wall Street expectations of $1.19 per share on revenue of $1.14 billion.

Crucially, Zoom is intent on rolling out generative AI tools within its services. With the rollout of AI Companion, the video conferencing platform can automatically set up meetings , attendees, start times, and other key metadata while monitoring in-call intent.

As the age of work-from-home ( WFH ) continues to gather momentum, Zoom seems set to embrace generative AI to offer users next-generation services. This bid to out-innovate rivals, backed by positive fundamentals, could see the platform return as a key competitor in the remote collaboration space. Thus, I think it is one of the most undervalued tech stocks you can buy right now.

PayPal Holdings Inc (PYPL)

Another example of a stock that’s suffered a significant decline following a pandemic boom is PayPal Inc. (NASDAQ: PYPL ), which ended Q2 2024 some 80.19% below its 2021 peak value.

Despite its post-pandemic downturn, PayPal remains a digital payment leader, with 426 million active accounts and operations throughout 200 global markets.

The firm’s Q1 2024 earnings show significant growth potential, with total payment volume (TPV) rising 14% to $403.86 billion from the year prior .

One of PayPal’s biggest reasons for optimism is the unveiling of a brand-new advertising sales network . This network could leverage user spending data and insights to shape targeted recommendations. This could revolutionize how merchants advertise their goods to customers.

This added utility for PayPal’s user data could provide a springboard for its stock, which has struggled to build momentum in 2024 so far despite positive earnings reports. For investors, the incorporation of its new advertising network could offer an opportunity for sustainable growth for the embattled stock. I think it is one of the most undervalued tech stocks.

Cisco Systems Inc (CSCO)

Despite its impressive longevity on Wall Street, Cisco Systems (NASDAQ: CSCO ) has spent much of the 2020s struggling to generate meaningful momentum. Since the beginning of 2022, the stock has tumbled more than 20% and has struggled to inspire investors.

This may soon change, however, with the communications conglomerate announcing a transformative $1 billion global investment fund intent on expanding and developing secure, reliable, and trustworthy AI solutions.

The announcement of the fund represents Cisco’s first significant foray into artificial intelligence. Innovative startups such as Cohere, Mistral AI, and Scale AI have already joined the firm’s investment portfolio to strengthen Cisco’s position in the industry.

In addition, Cisco has announced that it’s ‘very optimistic’ about its involvement in growing business with Chinese electric vehicle (EV) firms and supporting their overseas expansion.

This indicates that Cisco intends to penetrate global markets deeper and support emerging technologies at scale. With such a commitment to embracing innovation, it’s certainly worth tracking the discounted price of CSCO, with the prospect of a market recovery becoming more tangible.

On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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