Equities are being whipsawed by conflicting economic data. Some data points support the soft-landing theory and would guide to lower interest rates. However, some data suggests that the economy is still too strong for the Fed to consider cutting rates. It doesn’t help that we’re now in a time of year that is cyclically volatile for stocks.
This roller coaster ride is particularly noticeable in the technology sector. Many of the top technology stocks have fallen sharply. In fact, many are now trading at or near their 52-week lows.
If you have any of these stocks on your watchlist, you may be wondering if this is a time to buy or if these stocks are falling for a reason. To help you answer that question, here are three beaten-down tech stocks that investors may be getting wrong. Or it may be a case of traders trying to shake weak hands loose for the next move higher.
Airbnb Confirms Support, Remains a Strong Long-Term Buy
Airbnb Inc. (NASDAQ: ABNB) stock is down 20% in the last month, making it negative for 2024. The culprit was a weaker-than-expected earnings report, in which the company missed analysts’ expectations for earnings per share (EPS).
But what really sent the stock lower was the company’s guidance. Year-over-year (YoY) revenue growth was 10.8% in the quarter. The company is guiding that to slow down to a range between 8% and 10% in the coming quarter.
However, the short-term focus on revenue may be causing investors to overlook Airbnb’s incredible efficiency. This is reflected in its free cash flow (FCF) growth, which increased by 41% in the last 12 months.
The company has been using this FCF to reward shareholders via $2.5 billion of share buybacks in the last 12 months. The board has also authorized an additional $5.25 billion in stock repurchases. With the stock trading within 20% of its 52-week low, taking shares off the market could be ample fuel to send ABNB stock higher with any sign of a recovering economy.
GitLab is Well-Positioned to Capture Demand For AI
GitLab Inc. (NASDAQ: GTLB) is another beaten-down tech stock that presents an interesting opportunity. The company features its DevSecOps platform, which allows customers to efficiently build, test, and deploy software that meets current cybersecurity standards. What’s particularly intriguing is that GitLab has a large code repository that may be attractive to companies looking to build more powerful AI applications.
Nevertheless, GTLB stock is down 29% in 2024 and nearly 8% in the last month. This is after the company reported earnings in June that showed a 33% YoY growth in revenue. Analysts were quick to lower their price targets after the earnings report. However, even the lower price targets suggest that the stock could be trading at least 50% below its price of $44.67 on August 15, 2024.
The confirmation for this price action can be seen in increasing institutional buying over the last few quarters. This includes Cathie Wood’s Ark Invest which added to its position in GTLB stock in late July.
Wolfspeed is Attempting to Build a Better Mousetrap
Small-cap stocks have struggled over the last two years. Wolfspeed Inc. (NYSE: WOLF) is a good example of investors' pain. WOLF stock is down nearly 90% from its all-time high set in November 2021. The company isn’t a meme stock, but it was certainly caught up in a movement that sent stocks higher, no matter how risky they seemed to be.
In Wolfspeed's case, the risk is buying into a technology that was ahead of its time. The company is a leader in the silicon carbide (SiC) market. These chips have distinct advantages over traditional silicon chips, which make them attractive for applications such as electric vehicles (EVs), 5G, and solar.
However, the common denominator is that those sectors struggle due to sluggish consumer and commercial demand. That could be the reason that two downgrades hit Wolfspeed in the last month.
But like many things, this could simply be a case where demand delayed is not demand denied. If the Fed does cut rates in September, stocks like WOLF may be among the biggest beneficiaries.
