Rising reliance on technology across multiple sectors has fueled demand for advanced tech solutions, propelling the technology industry’s outlook. In addition, several advancements in cloud computing, generative AI, IoT, industrial robots, and more will create numerous opportunities for the industry players.
Given the industry’s rosy growth prospects, investors could consider buying fundamentally sound tech stocks Extreme Networks, Inc. (EXTR), International Business Machines Corporation (IBM), and Iteris, Inc. (ITI) for substantial returns before the end of the year.
Enterprises across different industries, including telecommunications, healthcare, retail, automotive, manufacturing, education, real estate, and finance, have accelerated the adoption of tech products and services to reshape business structures and models in all aspects to meet evolving market requirements.
Rapid digitalization across several industries, which has taken momentum lately due to the increased competition, harness automation & innovation, and leverage powerful tools, is the primary factor contributing to the robust demand for IT services. As per the latest forecast by Gartner, global IT spending is anticipated to reach $5.10 trillion in 2024, up 8% from 2023.
The revenue for the global IT services market is projected to reach $1.24 trillion in 2023. In terms of worldwide comparison, the United States is estimated to generate the most revenue, totaling $454.70 billion this year. Further, the revenue is expected to exhibit a CAGR of 7.4%, resulting in a market value of $1.77 trillion by 2028.
The tech services industry’s growth is further driven by ongoing trends like growing use of AI and machine learning, high demand for data analytics & big data solutions, enhanced focus on IoT & connected devices, and increased need to comply with data privacy regulations.
As the IT industry continues to expand and grow, the demand for IT hardware increases correspondingly. 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% during the forecast period.
Meanwhile, the rapid adoption of the latest digital technologies among organizations is spurring demand for advanced communication/networking infrastructure. IMARC Group expects the global enterprise networking market to total $80.70 billion by 2028, growing at a CAGR of 5.8% during the forecast period (2023-2028).
Given the industry’s robust outlook, investing in fundamentally strong tech stocks EXTR, IBM, and ITI could be wise before the year’s end.
Let’s discuss the fundamentals of these stocks in detail:
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 announced that two NHL clubs, Philadelphia Flyers and Winnipeg Jets, will deploy Extreme Wi-Fi 6 and Wi-Fi 6E-ready solutions to enhance their fan experiences, streamline arena operations, and gain actionable insights to create more personalized fan experiences and sponsorship opportunities. This deal should bode well for the company.
On November 7, EXTR introduced ExtremeCloud™ Universal Zero Trust Network Access (ZTNA), the industry’s simplest, most complete network access solution. Universal ZTNA is the first network security offering to integrate network, application and device access security within a single solution. This will be provided as a subscription service for ExtremeCloud customers.
Cloud-based Universal ZTNA will create a frictionless user experience and consistent security policy. It is another stride against Extreme’s One Network, One Cloud strategy, which reduces the cost and complexity of enterprise networking. This new launch is expected to drive EXTR’s profitability and growth.
In the 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.
Street expects EXTR’s revenue to increase 2.3% year-over-year to $340.25 billion for the third quarter ending March 2024. The company’s EPS is expected to grow 12.5% year-over-year to $0.33 for the same period. Moreover, EXTR topped the consensus EPS and revenue estimates in all four trailing quarters.
EXTR’s stock gained 8.6% over the past month to close the last trading session at $17.89.
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 POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Growth and Value. EXTR is ranked #4 out of 46 stocks in the Technology – Communication/Networking industry.
Click here to access additional EXTR ratings for Stability, Sentiment, and Momentum.
International Business Machines Corporation (IBM)
IBM offers integrated solutions and services internationally. The company operates through four segments: Software; Consulting; Infrastructure; and Financing. It provides products like hybrid cloud platform and software solutions, business transformation services, on-premises and cloud-based server and storage solutions, lease and installment payment services, and more.
On December 18, it was announced that IBM would acquire a duo of data integration assets from Germany-based enterprise software company Software AG for €2.13 billion ($2.30 billion). The all-cash deal includes ownership of StreamSets, a data integration platform, and WebMethods.
The Software AG’s integration platform-as-a-service (IPAAS) toolset fits with IBM’s broader embrace of the hybrid cloud, a shift that it has bolstered through the years with a series of big-bucks acquisitions.
On December 13, IBM signed a contract with the NATO Communications and Information Agency (NCI Agency) to help strengthen the Alliance’s cybersecurity posture with improved security visibility and asset management across all NATO enterprise networks.
Beginning in January 2024, IBM will deliver a custom-made, performance-based Asset, Configuration, Patching and Vulnerability (ACPV) Management Service to the Alliance.
For the third quarter that ended September 30, IBM’s total revenue grew 4.6% year-over-year to $14.75 billion. Its gross profit increased 8% from the year-ago value to $8.02 billion. Also, the company’s net income came in at $1.70 billion and $1.86 per share, compared to a net loss of $3.20 billion and $3.55 in the prior year’s quarter, respectively.
Furthermore, the company’s free cash flow was $1.68 billion, an increase of 123.7% from the same period of 2022.
The company remains optimistic about its full-year 2023 outlook, with revenue growth between 3%-5%. IBM’s free cash flow is expected to be nearly $10.5 billion, up more than $1 billion year-to-year.
Analysts expect IBM’s EPS and revenue for the fourth quarter (ending December 2023) to increase 5% and 3.6% year-over-year to $3.78 and $17.29 billion, respectively. Also, the company topped the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of IBM have gained 19.7% over the past six months and 17.2% over the past year to close the last trading session at $162.74.
IBM’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has a B grade for Quality. IBM is ranked #27 out of 77 stocks in the Technology - Services industry.
To access additional IBM’s ratings for Growth, Stability, Value, Sentiment, and Momentum, click here.
Iteris, Inc. (ITI)
ITI offers intelligent transportation systems technology solutions in North America, Europe, South America, and Asia. Its products include ClearGuide, ClearRoute, Commercial Vehicle Operations, BlueArgus, TrafficCarma, Vantage Apex, Vantage Fusion, and others. It also sells original equipment manufacturer products and provides travel demand forecasting.
On December 13, ITI announced the launch of Vantage CV™, a cutting-edge integrated detection and connected vehicle (CV) system for safer intersections. This new offering combines traffic detection, cellular vehicle-to-everything (C-V2X) transportation infrastructure communications and connected vehicle safety applications into a single solution.
“We’re thrilled to announce the launch of Vantage CV, a future-oriented single solution that enables real-world V2X applications,” said Joe Bergera, CEO at Iteris.
On November 14, ITI announced that it had been awarded a $13.30 million contract by the Metropolitan Transportation Commission (MTC) to continue operational support in the San Francisco Bay Area. ITI will provide managed services that support traveler information and toll lane operations across the San Francisco Bay Area.
ITI has been engaged in providing key services to the MTC since 2020, and this new contract will extend this valuable partnership through June 2027.
For the fiscal 2024 second quarter that ended September 30, 2023, ITI’s total revenues increased 11% year-over-year to $43.56 million. The company’s gross profit grew 148.3% from the year-ago value to $16.26 million. Its net income came in at $551 thousand, or $0.01 per share, against a net loss of $7.39 million, or $0.17 per share, in the prior year’s quarter, respectively.
In addition, ITI’s adjusted EBITDA was $2.92 million, compared to an adjusted EBITDA loss of $5.16 million in the same period of 2022. The company’s cash and cash equivalents amounted to $20.16 million as of September 30, 2023, compared to $16.59 million as of March 31, 2023.
Analysts expect ITI’s revenue and EPS for the fourth quarter (ending March 2024) to increase 4% and 211.1% year-over-year to $44.13 million and $0.09, respectively. Moreover, the company has surpassed the consensus revenue estimate in each of the trailing four quarters.
For the fiscal year ending March 2025, the company’s revenue and EPS are estimated to grow 10.7% and 32.1% year-over-year to $191.46 million and $0.34, respectively.
ITI’s shares have surged 50% year-to-date and 63.3% over the past year to close the last trading session at $4.59.
ITI’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value, Growth, and Stability. Within the A-rated Technology - Hardware industry, ITI is ranked #3 of 36 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see ITI’s ratings for Quality, Sentiment, and Momentum 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.
EXTR shares were unchanged in premarket trading Tuesday. Year-to-date, EXTR has declined -2.29%, versus a 25.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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