January was a pivotal moment for stock markets, closing off the first month of 2023 with the Nasdaq 100 (NDX) up more than 10%. Undoubtedly, many may be quick to dismiss the sudden pop in hot tech stocks as just another short-lived bear market bounce.
Still, there’s no denying the recent wave of enthusiasm spreading through the tech sector as contrarian investors go on the hunt for a steep bargain.
In this piece, we’ll check in on three large-cap tech stocks — GOOGL, AVGO, and MSFT — with “Strong Buy” ratings, according to the analyst community. Each stock has really heated up of late. Consensus price targets suggest more gains could be ahead.
Last week, Alphabet (NASDAQ:GOOG) was a wild mover around the release of its latest earnings results, blasting off over 9% in two days before plunging nearly 6% soon after releasing results. It was a roller-coaster ride for big tech, as many behemoths missed the mark but still managed to end the week in the green. I am bullish on GOOGL stock.
Alphabet’s numbers were not great, but they weren’t bad enough to wipe out the gains leading up to the quarter. At writing, the stock’s up a grand total of 17.6% year-to-date.
Indeed, investors may have been bracing for a lot worse. Given the quarterly blow-ups we saw last year, it shouldn’t have been too shocking to see Alphabet being mostly forgiven for its quarterly fumble.
Earnings ($1.05 EPS vs. $1.19 consensus) missed estimates, and ads continued to be a sore spot amid macro headwinds. Messy mass layoffs (12,000 jobs cut) also left a bad taste in the mouths of departing and many remaining employees.
Despite the week of bad headlines, Alphabet continues to be an intriguing artificial intelligence (AI) story as the firm looks to unveil a rival to OpenAI’s generative AI ChatGPT. CEO Sundar Pichai expects new AI-driven features to arrive “very soon.” Still, there’s no timeline on when Alphabet’s DeepMind will be ready to deliver as it looks to restructure itself.
Undoubtedly, OpenAI’s profound popularity has smashed the ball into Alphabet’s court. With a rich sea of search data, I expect Alphabet will deliver when it’s ready.
For now, the stock looks like it presents good value at 23.5 times trailing earnings. Yes, growth has stalled, but on the other side of this recession, AI and an ad recovery could call for a higher multiple on shares.
What is the Price Target for GOOGL Stock?
Wall Street has a “Strong Buy” on Alphabet, with 30 unanimous Buy ratings. The average GOOGL stock price target of $129.40 calls for 25.8% upside potential.
Broadcom is off to the races, up around 8% year-to-date. The stock was recently named one of Mizuho’s top chip stock picks for 2023. Of the names on its lists, Broadcom offers one of the richest dividend yields, now sitting at around 3%. I am bullish on AVGO stock.
The stock’s recent rally off lows has been quite explosive, but I think there’s still value to be had as shares look to inch closer to their all-time highs just north of $677 per share.
First, Broadcom had a weight of worry lifted from its shoulders when analyst Ming-Chi Kuo stated Apple (NASDAQ:AAPL) is pulling the brakes on work with its Wi-Fi chips. Indeed, Apple’s move to in-house components in its smartphone has been a cause of concern for many of Apple’s suppliers.
Though Apple may still look to in-house Broadcom-made components in the future, it’s clear that one-upping Broadcom is no easy feat. In any case, Broadcom’s moat is wide, and it’ll likely remain this way as the firm continues investing in both hardware and software.
At 22.8 times trailing earnings, Broadcom trades at a discount to the semiconductor industry average of 43.3 times.
What is the Price Target for AVGO Stock?
Broadcom sports a “Strong Buy” rating, consisting of 13 Buys and one Hold. The average AVGO stock price target of $660.75 entails 9.7% upside potential.
Microsoft is making headlines for its investment in ChatGPT — the AI that captured the world’s attention. The company plans to incorporate ChatGPT into its wide range of software offerings. Undoubtedly, the language model would prove incredibly useful in Bing, Office, Visual Studio Code, Teams, and other sticky enterprise products. The limits are seemingly endless for a company that continues to look to innovation for growth. I am bullish on MSFT stock.
As ChatGPT and other OpenAI offerings improve, I think it’s tough to gauge how much additional growth could be added to the Microsoft engine. Unlike the many AI unicorns out there, Microsoft has the expertise and resources to pull it off in a high-rate environment. Arguably, Microsoft’s the cheapest and least-risky way to play next-generation AI.
2023 will be a very eventful year for the enterprise behemoth. For example, Microsoft’s Activision (NASDAQ:ATVI) deal is up in the air, and it’ll be interesting to see how the firm moves forward cautiously.
In any case, the stock seems like a great deal at 28.7 times trailing earnings, which is well below the five-year historical average MSFT P/E ratio of 35.9.
What is the Price Target for MSFT Stock?
Wall Street stands by its “Strong Buy” consensus rating, with 25 Buys, three Holds, and one Sell. The average MSFT stock price target of $280.97 implies a 9.3% gain.
The Takeaway
If the Fed has more than one 25bps rate hike up its sleeves over the coming months, bigger could prove better (at least less volatile) regarding tech companies. Out of these three stocks, GOOGL has the most upside potential, according to analysts.
Disclosure
