It’s been a strong year for technology stocks. The S&P 500 Information Technology index has surged by 39% for year-to-date (YTD). The rally comes after a deep correction in some of the top tech stocks last year. While big technology names have been in the focus, this column looks at the lesser-known tech stocks that can skyrocket in the next 24 months.
An important point to note is that all industries must adopt emerging technology to stay competitive. The addressable market is therefore big for technology companies. I believe that in the coming years artificial intelligence (AI), Internet of Things (IoT) and cloud computing, will dominate headlines. Of course, the technology world is dynamic and there will be disruptive innovations from time to time.
For now, the focus is on three top tech stocks to buy that can deliver multibagger returns. These tech stocks represent companies that have a big addressable market, which provides headroom for sustained growth.
Splunk (NASDAQ:SPLK) stock, backed by strong business developments, is poised to deliver multibagger returns by 2025. SPLK has been in an uptrend with returns of 37% for year-to-date (YTD). However, I believe that fresh exposure can be considered at current levels and the positive stock momentum will sustain.
As an overview, Splunk claims to be a leader in the business of cybersecurity and observability. The company is on a robust growth trajectory with Q2 2024 revenue of $911 million, which was higher by 14% on a year-on-year (YoY) basis. Further, as of Q2, the company’s annual recurring revenue (ARR) swelled to $3.858 billion.
The company believes the total addressable market for security and observability is $100 billion. With a big addressable market, there is ample headroom for revenue growth and cash flow upside. For the trailing 12 months, Splunk reported a free cash flow (FCF) of $805 million. With a strong financial position, Splunk will be positioned to invest in innovation and platform development.
Amdocs Limited (DOX)
Among emerging names in the technology industry, Amdocs (NASDAQ:DOX) is worth considering. DOX stock trades at an attractive forward price-earnings ratio of 14.7 and offers a dividend yield of 2%. I expect a strong rally from undervalued levels as fundamentals continue to improve.
As an overview, Amdocs is a provider of software services and solutions to the media and telecommunication industry globally. The company believes by 2025, the addressable market for its services will be worth $57 billion. That provides ample headroom for growth.
For Q3 2023, Amdocs reported revenue of $1.24 billion and a record 12-month backlog of $4.14 billion. With over 70% of revenue being recurring, there is clear cash flow visibility. It’s worth noting that for 2023, Amdocs has guided for free cash flow of $700 million. With steady growth, FCF will continue to swell and I expect healthy dividend growth.
PAR Technology (PAR)
PAR Technology (NYSE:PAR) stock is among the top tech stocks to buy from the small-cap space. The shares trended higher by 56% YTD. However, the stock remains attractive considering positive business developments.
As an overview, PAR is a provider of technology solutions to the retail and restaurant industry globally. Further, the company caters to the government sector with software solutions for mission systems, intelligence, surveillance and reconnaissance solutions. For Q2 2023, the company reported revenue growth of 18.2% YoY to $100.5 million. While the company reported EBITDA-level losses, there are several positives to note.
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First, ARR swelled to $122.5 million, 24.3% higher on a YoY basis. Further, the company’s new store activations in the guest engagement segment were 3,400 for Q2 2023. New store activations remained strong for operator solutions and back office. With robust additions, there is clear revenue growth visibility. I must add that with operating leverage, EBITDA margin is likely to be positive in the next few quarters.