3 Undervalued Stocks That Could Grow 25% This Year or More

Before bargain hunting, it’s essential to understand what makes a stock undervalued. Shares are partial ownership in businesses that generate earnings and cash flows. A stock is considered undervalued if it trades below a conservative estimate of the company’s intrinsic value, which is based on its future cash flow, discounted to present value. Growing companies may also be undervalued, while some seemingly undervalued stocks may be in decline.

Investors don’t always have to settle for high valuations when looking for growth. Some stocks offer significant upside potential at reasonable valuations. However, assessment alone is not enough. Many telecom stocks have low price-to-earnings ratios, but limited growth and high yields that offset the bearish outlook.

The best stocks combine reasonable valuations with growing revenues and margins. A stock with a high price-to-earnings ratio could be undervalued if it is experiencing financial success, while one with a low valuation multiple could be overvalued if its profits are declining. Those looking for undervalued opportunities in the large-cap tech space may be harder to capitalize on given where the multiples are right now. But these three stocks are among the megacap tech names that analysts believe are at least 25% undervalued at current levels.

Let’s dive in.

Key points about this article:

• Finding undervalued stocks in this current market, which is full of perfectly priced companies, is becoming increasingly important for investors.
• These three mega-cap tech stocks certainly appear to be among the best values ​​in their respective industries relative to their growth prospects.
• If you are looking for action with huge potential, be sure to grab a free copy of ours brand new “Next NVIDIA” report.. It has a software stock where we are sure it has 10x potential.

Amazon (AMZN)

Image of an Amazon office building

Amazon (NASDAQ:AMZN) is primarily known as an e-commerce giant, with its logistics business continuing to generate the majority of its total revenue. However, from an earnings perspective, the company’s AWS cloud offerings continued to lead. And as Amazon continued to advance its AI solutions in this area, the growth rate increased significantly in this critical sector.

In Q2Amazon’s AWS segment grew 19 percent, generating more than $26 billion in revenue, beating Wall Street expectations by nearly 2 percent. With the supply of AI chips improving and the company’s AI capabilities gaining ground, analysts at RBC Capital remains optimistic. They recently maintained an Outperform rating with a $215 price target, citing Amazon’s AI investments as effectively supporting the company’s AWS demand.

On August 5, the stock markets had their worst day in nearly two years, hitting Amazon, whose shares were already falling. Over the past month, Amazon shares have fallen nearly 13%, a significant drop for a $1.79 trillion company. However, long-term performance is expected to recover, with many pointing to the company’s Advances in AI as a key driver of growth going forward.

Amazon certainly isn’t an overpriced stock compared to its peers, trading at just 22.9 times earnings. This multiple is justified due to its many growth opportunities and strong competitive advantages, including network effects, high switching costs and a strong brand. Amazon’s potential to capitalize on the AI ​​boom and other factors make it a compelling investment. Additionally, with strong diversification into various sectors including e-commerce, cloud computing and streaming, Amazon appears to be well-positioned for continued long-term growth.

Alibaba (BABA)

Alibaba Cloud logo pinned on a wall with blue background

Once a leader among Chinese tech giants, Alibaba (NYSE:BABA) has faced challenges from fast-growing rivals like PDD Holdings and Douyin. PDD’s low-price strategy has drawn consumers away from Alibaba, especially in the e-commerce sector, and the company’s success in live e-commerce has further intensified competition. These factors contributed to Alibaba’s modest 5% e-commerce revenue growth in fiscal 2024, compared to 42% in 2021. Despite this reality, Alibaba retained a dominant market share of 46% in 2023, which indicates a continued consumer preference for its platform.

David Tepper, with over 30 years of wealth development experience, doubled its stake in Alibaba to more than 11 million shares in Q1. His opportunistic, fundamentals-driven strategy led him to Alibaba, which is 75% off its highs and trading at a single-digit free cash flow multiple. Also, despite market pessimism, many value investors believe Alibaba offers substantial value with a very low valuation multiple and $85 billion in assets. Notably, the Chinese tech giant also bought back $12.2 billion in shares, started paying dividends, and has the potential for growth recovery.

Alibaba shares could gain a boost from a $20 billion inflow as Chinese investors gain access. The upgrade to a main listing in Hong Kong has been on hold for a long time, but is expected to (finally) materialize soon. The move could allow Alibaba to step into the spotlight among investors who simply don’t want to own Chinese stocks right now.

The Alphabet (GOOG)

Image of a Google logo on a glass partition

Alphabet (NASDAQ:GOOG) is the largest player in global online advertising, with a market capitalization of $2 trillion. Known for its core Google search business, Alphabet is also a major player in cloud computing, ranking third in the industry. The stock is up 19% this year and 178% over the past five years. So, despite a current correction, its multiple of just 24 times earnings (along with a small but significant dividend yield of 0.5%) makes it a value that tech equity investors can walk away from .

Of the company Results Q2 were strong, with Alphabet reporting a 14% increase in revenue and a 29% increase in net income. Cloud revenue topped $10 billion with Google Cloud’s first billion-dollar quarterly operating profit driven by AI growth.

Last quarter, the company saw 14% growth in search, 13% in YouTube ads and 29% in Cloud revenue, pushing operating income to a record $98 billion. Despite initial fears of falling behind in AI to OpenAI and Microsoft, Alphabet has matched and surpassed these innovations, now leading AI advancements.

The Wall Street Journal recent highlighted the fact that Google remains the dominant player in its field, controlling over 90% of global search and powering 70% of Android smartphones. Alphabet continues to innovate with tools like Google Lens and multisearch, strengthening its AI and advertising capabilities. With digital ad spending estimated at $740.3 billion, Google is well positioned for continued growth and should be able to maintain its competitive edge for a very long time.

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