The U.S. business services space has been benefiting from the strong fundamentals of the economy. Despite facing a record-high interest rate and extremely tight monetary control by the Fed, this sector has provided double-digit returns in the past year.
Within this sector, the technology services industry is mature, with demand for services in good shape. Revenues, income and cash flows are anticipated to gradually reach the pre-pandemic levels, aiding most industry players to pay out stable dividends. Consequently, this industry is flourishing in 2024.
Growth in the technology services industry has increased the number of remote workers in the wake of the pandemic. In this era of digital transformation, enterprises are actively seeking a common ground between on-premise and cloud infrastructure that will enable them to provide flexible and easy-to-adopt hybrid solutions.
The business software industry is gaining from robust demand for multi-cloud-enabled software solutions, given the ongoing transition from legacy platforms to modern cloud-based infrastructure.
The industry players are incorporating artificial intelligence and tools like machine learning in their applications to make the same more dynamic and result-oriented. Elevated demand for enterprise software, which is ramping up productivity and improving the decision-making process, is a key catalyst.
Per market.us, the worldwide artificial intelligence market was worth $177 billion in 2023 and is anticipated to reach a staggering $2.75 trillion by 2032. PricewaterhouseCoopers International Ltd. estimated that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion should come from consumption-side effects.
In the past year, the Zacks Defined Business Services sector has provided a double-digit return of 16.5% and the Technology Services industry has rallied an impressive 43.9%. Year to date, the Business Services sector and the Technology services industry have advanced 7.3% and 18.6% respectively. Since the Technology Services industry ranks within the top 28% of Zacks Ranked Industries, we expect it to outperform the market over the next three to six months.
Our Top Picks
We have narrowed our search to five technology services stocks that have a solid upside left for the rest of 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks sports a Zacks Rank #1 (Strong Buy).
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
AppLovin Corp. APP is engaged in building a software-based platform for mobile app developers to enhance the marketing and monetization of their apps in the United States and internationally. APP provides a technology platform that enables developers to market, monetize, analyze and publish their apps.
AppLovin has an expected revenue and earnings growth rate of 31.7% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 18.9% over the last 60 days.
Duolingo Inc. DUOL operates as a mobile learning platform in the United States, China, the United Kingdom, and internationally. DUOL offers courses in 40 different languages, including Spanish, English, French, German, Italian, Portuguese, Japanese, and Chinese through the Duolingo app. DUOL also provides a digital language proficiency assessment exam.
Duolingo has an expected revenue and earnings growth rate of 37.8% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 26.1% over the last 60 days.
Spotify Technology S.A. SPOT provides audio streaming services worldwide. SPOT operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices. SPOT also offers sales, distribution and marketing, contract research and development, and customer support services.
Spotify Technology has an expected revenue and earnings growth rate of 17.3% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 40.6% over the last 30 days.
SPX Technologies Inc. SPXC supplies infrastructure equipment serving the heating, ventilation, and cooling (HVAC) and detection and measurement markets worldwide. SPXC operates in two segments, HVAC and Detection and Measurement.
The HVAC segment engineers, designs, manufactures, installs, and services package and process cooling products and engineered air movement solutions for the HVAC industrial and power generation markets, as well as boilers, heating, and ventilation products for the residential and commercial markets. The Detection and Measurement segment offers underground pipe and cable locators, inspection and rehabilitation equipment, and robotic systems.
SPX Technologies has an expected revenue and earnings growth rate of 14.7% and 24.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.1% over the last 60 days.
Aptiv plc APTV is well-positioned to leverage growing electrification, connectivity, and autonomy trends in the rapidly evolving automotive sector. Acquisitions and collaborations help APTV capitalize on developing automotive markets. APTV has ramped up investments in advanced technology and collaborations to make the most of the opportunities offered by the automotive sector.
Aptiv has an expected revenue and earnings growth rate of 5.2% and 23.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.7% over the last 60 days.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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