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Q1’s Rising Stars: 3 Tech Stocks for Your Must-Watch List

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Overall, technology as a sector impressed in 2023. While that might be a temptation to rotate to laggards, sticking with tech stocks in 2024 could be rewarding. The sector has several secular tailwinds, such as artificial intelligence, cloud computing and rising semiconductor demand.

Most importantly for the sector, inflation is slowing. As a result, the markets expect central bank rate cuts in 2024. Although disagreement exists on the magnitude of reductions, many concur that the direction will be lower. A falling rate environment will be favorable for technology stocks.

Indeed, the technology sector is the best bet in an economic growth environment. These tech stocks to watch achieved over 10% quarter-over-quarter growth in their latest quarter. Additionally, with solid earnings growth expectations for 2024, they are reasonably valued.

Shift4 Payments (FOUR)

e-commerce stocks

Source: Shutterstock

Shift4 Payments (NYSE:FOUR) has been in the limelight since CEO Jared Isaacman disclosed he was exploring strategic opportunities and alternatives. The deal chatter hasn’t subsided and is actually picking up. On Dec. 14, 2023, Bloomberg reported that Global Payments (NYSE:GPN) was weighing an acquisition of Shift4.

For several quarters, the firm has been growing end-to-end volume. In Q3 2023, it reported a 36% growth in end-to-end payment volume. Gross revenues increased 23% YOY and adjusted EBITDA was $124.5 million, up 46% YOY.

The new cloud-based restaurant POS offering, SkyTab, is seeing tremendous adoption. By the end of Q3 2024, the firm had installed 23,000 systems in entertainment venues and stadiums. In the quarter, it agreed to install SkyTab at BetMGM sports book locations, Paycom Center, home of the Oklahoma City Thunder and Amway Center, home of the Orlando Magic.

Shif4 expects to close the year with 52% volume growth. Finally, with the closing of the Finaro acquisition on Oct. 26, 2023, Shift4 has begun European expansion. Management expects a robust European pipeline in 2024 as it brings SkyTab to European restaurants. As the company continues to explore strategic alternatives, it is one of the tech stocks to watch.

Salesforce (CRM)

The entrance sign of Salesforce Tower, at the American cloud-based software company Salesforce's (CRM stock) Headquarters campus in San Francisco, California.

Source: Tada Images / Shutterstock.com

Since the activist pressure began, Salesforce (NYSE:CRM) has been a margin expansion story. In short order, the company has improved non-GAAP operating margins from 22.7% in Q3 FY2023 to 31.2% in the latest quarter. Still, analysts at Baird see further improvement.

On January 11, they upgraded CRM stock to “outperform” and increased the price target to $300. They noted that they had underestimated the margin expansion potential. Furthermore, they expect stronger-than-expected front office demand and price increases to push the stock higher.

Heading into 2024, Salesforce is one of the tech stocks well-positioned to drive profitable growth. Since it’s the number 1 AI CRM, companies like Fujitsu (OTCMKTS:FJTSY) and Southwest Airlines (NYSE:LUV) are relying on its solutions for productivity gains. Indeed, in Q3, deal sizes over $1 million grew 80% YOY.

Salesforce is pioneering an innovation cycle with data, AI, CRM and trust. With solid top-line growth and substantial margin improvements, it’s trading at historically low multiples. Baird notes the stock is trading at 25 times the next twelve-month free cash flow hence, it’s a bargain.

Ciena (CIEN)

Ciena (CIEN) sign in Silicon Valley.

Source: Michael Vi / Shutterstock.com

This top optical vendor is one of the top tech stocks to watch due to its exposure to AI and multicloud. Although 30% of the business is cyclical, Ciena (NYSE:CIEN) has a data growth tailwind. Furthermore, the next-gen product launch could be a revenue growth catalyst.

Although revenues from telecom providers such as AT&T (NYSE:T) and Verizon (NYSE:VZ) have been weaker than expected, enterprise has made up for the shortfall. On Dec. 7, 2023, the company reported it had achieved an impressive 21% revenue growth in FY2023.

Cloud orders have particularly been robust as customers build their data center interconnect. Ciena had a record year with cloud customers. Revenues from direct customers increased 57% YOY to $1.2 billion, accounting for 27% of the total.

In a recent report, Evercore noted that the company can achieve 5% revenue growth in 2024 versus expectations of 1-4%. Analyst Amit Daryanani expects that cloud and India growth will offset any potential weakness in other segments. The firm projects FY2024 EPS of $3.50, valuing CIEN stock at 14 times forward earnings.

Over the medium term, artificial intelligence is a catalyst for continued bandwidth growth. The company enters 2024 with a $2.6 billion backlog and expects strong demand as cloud providers ramp up their capital expenditure plans.

On the date of publication, Charles Munyi 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.

Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.

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