This incredibly cheap tech stock has crushed Nvidia over the past 3 months and is still a solid buy

Nvidia (NASDAQ: NVDA) has been one of the market’s hottest stocks in 2024, with gains of a staggering 145% at the time of writing, but the semiconductor giant’s performance has been spotty over the past three months despite its impressive quarterly results.

Specifically, Nvidia stock has lost 2% of its value over that time frame. This can be attributed to various reasons such as the ability of artificial intelligence (AI) technology to continue to drive high levels of growth for the company, the viability of AI to justify the huge amounts of money that corporations and governments are investing in this technology. , and the rich valuation that Nvidia commands.

Now, a closer look at Nvidia’s outlook suggests those concerns may not hold much water in the long run. The company’s focus on diversifying its business, as well as sustained spending on AI infrastructure and software, could help it continue to grow at a healthy pace. However, investors looking for a cheaper AI alternative may want to look at options beyond Nvidia to put their money into.

This is the place Check Point software technologies (NASDAQ: CHKP) come in The Israeli cybersecurity specialist is up 17% over the past three months, outperforming Nvidia’s returns by a wide margin. Let’s see why that was and check if this company has the potential to sustain its impressive rally.

Check Point Software’s steady growth has driven its recent rally

Check Point Software may not be as well known as other cyber security vendors such as Palo Alto Networks or CrowdStrike because of its slow pace of growth, but a closer look at the company’s recent financial performance tells us that it is headed in the right direction.

The company released its second-quarter results in July, reporting a 7% year-over-year increase in revenue to $627 million. Its adjusted earnings rose 8% year-over-year to $2.17 per share. The numbers beat the midpoint of the company’s revenue forecast of $622 million and earnings per share estimates of $2.15 a share.

Check Point attributed its stronger-than-expected performance to healthy growth in its security subscription business, which is driven by growing adoption of its artificial intelligence-based Infinity security platform, which saw double-digit growth of revenues in the previous quarter. Check Point’s management pointed out on the company’s July earnings conference call that the increase in bookings on the Infinity platform is leading to an improvement in its billing.

The story continues

The company says it has closed “nice eight-figure deals in Infinity,” a push that’s likely to continue thanks to the growing use of AI in the cybersecurity space. The company offers several AI-focused tools, such as a generative AI assistant known as Infinity AI Copilot, which aims to reduce the time it takes to perform administrative tasks and improve the efficiency of cybersecurity analysts.

It also offers another product known as Infinity ThreatCloud AI, through which organizations can fully automate their firewalls using real-time data. More importantly, Check Point says it plans to come up with a new AI-centric offering every quarter. It’s a smart thing to do, as the market for generative AI-based cybersecurity products is expected to generate $40 billion in revenue by 2030, compared to about $7 billion this year.

So Check Point’s focus on artificial intelligence-based generative cybersecurity could ultimately help improve its growth rate going forward. It’s worth noting that the company’s security subscription business saw a 14% year-over-year revenue increase in the previous quarter to $272 million, accounting for 43% of its top line. This was an improvement from the year-ago period, when subscriptions accounted for 40% of the top line.

Faster growth in its subscription business and potential room for growth here suggest Check Point could be poised for stronger growth going forward. Not surprisingly, the company is expected to deliver double-digit earnings growth over the next two years, following this year’s estimated 8% growth (it provided $8.42 per share in earnings in 2023).

The valuation makes the stock an attractive bet right now

Check Point trades at 27 times trailing earnings. Its anticipated earnings multiple of 19 points to a significant improvement in the company’s bottom line. The stock is currently cheaper than the Nasdaq-100 The index earnings multiple of 31 (using the index as a proxy for tech stocks), meaning investors are getting a good deal on the stock right now.

Additionally, the company has a solid balance sheet with only $36 million in debt and a cash position of $1.66 billion. Assuming Check Point’s bottom line rises to $11.12 a share in 2026, according to the chart, and it trades at 31 times earnings at that time (in line with the Nasdaq-100’s earnings multiple), its stock price could rise to $345. That would be a 78% increase from current levels.

So investors looking for an attractively valued tech stock that could capitalize on the growing adoption of AI and deliver healthy gains over the long term may want to consider buying Check Point as everything looks poised to go up.

Should you invest $1,000 in Check Point Software Technologies right now?

Before buying stock in Check Point Software Technologies, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Check Point Software Technologies was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $716,988!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The Equity Advisor returns as of September 30, 2024

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Check Point Software Technologies, CrowdStrike, Nvidia and Palo Alto Networks. The Motley Fool has a disclosure policy.

This incredibly cheap tech stock has crushed Nvidia over the past 3 months and is still a solid buy was originally published by The Motley Fool