The technology sector is experiencing consistent expansion as digitization becomes more prevalent and reliance on technology continues to grow. Moreover, the tech sector rebounded significantly in 2023, marking one of Nasdaq's strongest years in the past two decades and exhibiting the bright prospects of the tech industry.
So, let us delve into the analysis of robust tech stocks TDK Corporation (TTDKY), Dolby Laboratories, Inc. (DLB), and Extreme Networks, Inc. (EXTR), which present compelling opportunities for investors.
In 2023, the Nasdaq rebounded impressively with a 43% gain after a challenging 2022. The industry saw a renewed risk appetite, fueled by the Federal Reserve's pause on interest rate hikes and a more stable inflation outlook. Tech companies, having implemented cost-cutting measures in the prior year, reaped the benefits, enhancing efficiency and bolstering profit margins.
The tech sector also benefited from favorable macroeconomic conditions and expectations of lower borrowing costs. Additionally, the rise of generative artificial intelligence sparked enthusiasm, driving increased investments in this emerging technological frontier.
Additionally, digital transformation continues to be crucial in the modern business landscape, serving not only as a choice but a necessity. The effective use of technology is vital for providing the best customer experiences, incorporating better data insights, personalized support, and advanced capabilities.
Besides, the strong demand for IT services is driven by rapid digitalization in various industries, fueled by increased competition, automation, innovation, and the utilization of powerful tools. As per the latest forecast by Gartner, global IT spending is anticipated to reach $5.10 trillion in 2024, up 8% from 2023.
Moreover, advancements in digital technologies drive a robust demand for sophisticated hardware, crucial for supporting advanced computing, networking, and storage needs. The emergence of the Internet of Things (IoT) and edge computing amplifies this requirement, leading to the development of specialized hardware tailored for decentralized computing and edge-based data processing.
The IT hardware market size is projected to grow from $121.32 billion in 2023 to $177.11 billion by 2028, exhibiting a CAGR of 7.9%.
Furthermore, as organizations rapidly embrace the latest digital technologies, there is a heightened demand for advanced communication and networking infrastructure to facilitate seamless connectivity, efficient data transfer, and optimal performance in the evolving digital landscape.
IMARC Group expects the global enterprise networking market to total $80.70 billion by 2028, growing at a CAGR of 5.8%.
In light of these encouraging trends, let's look at the fundamentals of the three best tech stocks.
TDK Corporation (TTDKY)
Headquartered in Tokyo, Japan, TTDKY engages in the manufacture and sale of electronic components worldwide. The company operates through the following segments: Passive Components; Sensor Application Products; Magnetic Application Products; Energy Application Products; and Other segments.
TTDKY’s trailing-12-month ROCE and ROTA of 5.12% and 2.38% are 251.1% and 397.2% higher than the industry averages of 1.46% and 0.48%.
On January 9, 2024, TTDKY and The Goodyear Tire & Rubber Company, one of the world's largest tire companies, announced a collaboration aimed at advancing next-generation tire solutions. The goal is to accelerate the development and adoption of integrated intelligent hardware and software into tires and vehicle ecosystems.
On January 4, TTDKY’s subsidiary, TDK Ventures, Inc., made an investment in Singaporean tech disruptor Silicon Box. The focus of the investment is on Silicon Box's innovative semiconductor chiplet packaging design and fabrication capabilities, which set new standards in performance and scale.
The company pays $0.79, which yields 1.61% on the current market price. It has raised its dividend payouts at a CAGR of 10.5% over the past three years.
During the half-year ended September 30, 2023, TTDKY’s net sales amounted to YEN1.06 trillion (7.28 billion). Its operating profit and net profit attributable to owners of the parent stood at YEN85.55 billion ($58.77 million) and YEN54.19 billion ($37.23 million). Moreover, its EPS was YEN142.64.
TTDKY’s total current assets came in at ¥1.79 trillion ($12.30 billion) for the period that ended September 30, 2023, compared to ¥1.61 trillion ($11.06 billion) for the period that ended March 31, 2023.
Analysts expect TTDKY’s revenue to increase 285.7% year-over-year to $14.29 billion for the year ending March 2024. Its EPS is expected to come in at $2.19 for the same year.
TTDKY’s shares have soared 45.2% over the past year and 28.3% over the past three months to close its last trading session at $49.
TTDKY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Value, Stability, and Sentiment. Within the B-rated Technology – Hardware industry, it is ranked #12 out of 36 stocks.
To see TTDKY’s additional Growth, Momentum, and Quality ratings, click here.
Dolby Laboratories, Inc. (DLB)
DLB designs and manufactures advanced audio and imaging hardware and software for the entertainment, cinema, broadcast, and television industries. Its products enhance image and sound quality during content creation, distribution, and playback, providing a superior audiovisual experience for audiences.
DLB’s trailing-12-month EBIT margin of 20.22% is 311% higher than the 4.92% industry average. Its trailing-12-month net income margin of 15.44% is 554.6% higher than the industry average of 2.36%.
On December 5, DLB paid a cash dividend of $0.30 per share of Class A and Class B common stock. The company distributes an annual dividend of $1.20, which yields 1.40% on the current market price, higher than the four-year average dividend yield of 1.20%. The company has consistently raised its dividend payouts for the past nine years.
DLB’s revenue increased 4.4% year-over-year to $290.56 million in the fourth quarter that ended September 30, 2023. Its gross income increased 5.8% from the year-ago quarter to $255.01 million. Also, the company’s non-GAAP net income and EPS increased 21.2% and 20.4% year-over-year to $63.94 million and $0.65, respectively.
For the fiscal year 2024, DLB forecasts total revenue of approximately $1.30 billion and a gross margin of around 89%. Non-GAAP operating margin is expected to be approximately 32%, with non-GAAP EPS ranging from $3.60 to $3.75.
DLB’s EPS is expected to rise 3.9% year-over-year to $3.70 in the fiscal year ending September 2024. Its revenue is likely to be $1.30 billion in the same year. It surpassed EPS estimates in three of four trailing quarters, which is impressive.
Shares of DLB have gained 13.5% over the past year to close the last trading session at $85.75.
DLB’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
DLB has an A grade for Quality. It ranks #9 out of 41 stocks in the B-rated Technology – Electronics industry.
Click here to access additional DLB ratings (Growth, Value, Stability, Sentiment and Momentum).
Extreme Networks, Inc. (EXTR)
EXTR offers software-driven networking solutions worldwide. It designs, develops, and manufactures wired, wireless, and software-defined wide area-network infrastructure equipment. The company provides ExtremeCloud IQ, an ML/AI-powered, wired, and wireless cloud network management solution. It also offers wireless local area network access point products.
On November 16, EXTR revealed that the Philadelphia Flyers and Winnipeg Jets, two NHL clubs, had chosen Extreme Wi-Fi 6 and Wi-Fi 6E-ready solutions to elevate fan experiences, optimize arena operations, and extract valuable insights for personalized fan interactions and sponsorship opportunities. This partnership is expected to positively impact the company's prospects.
On November 7, EXTR unveiled ExtremeCloud™ Universal Zero Trust Network Access (ZTNA), marking a significant advancement in network access solutions. Universal ZTNA stands out as the initial network security offering to seamlessly integrate network, application, and device access security in a unified solution. This innovative solution will be available as a subscription service for ExtremeCloud customers.
The cloud-based Universal ZTNA aims to deliver a seamless user experience and consistent security policy, aligning with Extreme's One Network, One Cloud strategy. This strategic move is poised to enhance EXTR's profitability and contribute to its overall growth while simultaneously reducing the cost and complexity associated with enterprise networking.
During the fiscal first quarter that ended September 30, 2023, EXTR’s net revenue increased 18.6% year-over-year to $353.14 million. Its gross profit grew 27.7% year-over-year to $212.94 million. Its non-GAAP net income came in at $46.50 million, or $0.35 per share, compared to $27.10 million, or $0.20 per share in the same period of 2022, respectively.
EXTR recently provided a business update on its financial results for the second quarter ending December 31, 2023. The company anticipates revenues to be approximately $294 to $297 million. Annualized subscription and support revenue is expected to reach around $430 million, driven by a 41% year-over-year subscription growth.
Street expects EXTR’s revenue and EPS to rise 1.6% and 14.1% year-over-year to $1.33 billion and $1.24 in the fiscal year ending June 2024, respectively. Moreover, EXTR topped the consensus EPS and revenue estimates in all four trailing quarters.
EXTR’s stock gained marginally to close the last trading session at $16.22.
EXTR’s bright outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth and Value. EXTR is ranked #4 out of 45 stocks in the Technology – Communication/Networking industry.
In addition to the POWR Ratings stated above, one can access EXTR’s Stability, Sentiment, and Momentum ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TTDKY shares were trading at $49.42 per share on Tuesday morning, up $0.42 (+0.86%). Year-to-date, TTDKY has gained 4.44%, versus a 0.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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