Following a roughly 33% decline in 2022, the Nasdaq Composite ($NASX) has bounced back quite nicely in 2023. Fueled by optimism over the rising prevalence of artificial intelligence (AI), the tech-heavy index recorded its strongest first-half gains in four decades.
However, the Nasdaq has pulled back since peaking in mid-July, pressured by a mixed earnings season and concerns over the prospect of additional rate hikes. While the index has recovered from its August lows, it’s still off about 2% from its July highs.
That’s why it’s so notable that the three tech stocks below managed to break out to new highs of their own during the month of August. Here’s a look at what drove the positive price action in these names, and what analysts expect for these standout tech stocks next.
First up on our list is Google parent Alphabet (GOOGL). With interests ranging across the tech spectrum, from AI and cloud computing to search engine dominance and mobile operating systems, Alphabet is ubiquitous in our daily lives.
Shares of the tech titan, which has a huge market cap of $1.71 trillion, are up more than 3% on the month, outperforming the Nasdaq. GOOGL set a new 52-week high of $138 earlier today.
The positive momentum in the stock was sparked in late July by strong results for the second quarter. Powered by a rebound in ad sales, Google posted revenues of $74.6 billion, up 7.1% YoY and above the consensus estimate of $72.82 billion. Meanwhile, EPS for the April-June period came in at $1.44, up 19% year-over-year and above expectations for $1.34 per share. It was a relatively rare earnings beat for GOOGL; bottom-line results have failed to top estimates in three out of the past five quarters.
Earnings forecasts remain upbeat for Alphabet, with analysts targeting 36.8% and 24.6% growth for the current quarter and FY 2023, respectively.
Besides its strong results, Google’s moves in the AI space have also pushed its share price higher. Notably, the company just announced a partnership with AI giant Nvidia (NVDA), wherein Google’s cloud customers will have greater access to technology powered by Nvidia’s powerful H100 GPUs. Google’s cloud business has already onboarded consumer giant Estee Lauder (EL) and automotive giant General Motors (GM) as customers.
Google also announced the launch of SynthID, a tool developed in collaboration with its subsidiary DeepMind, which will allow users to differentiate between real images and AI-generated images.
Overall, analysts are bullish about Google, judging by the average “Strong Buy” rating on the stock and mean target price of $148.76 – which indicates upside potential of about 8.7% from current levels. Out of 33 analysts covering the stock, 26 have a “Strong Buy” rating, 3 have a “Moderate Buy” rating, and 4 have a “Hold” rating.
Networking giant Cisco Systems (CSCO), with a $231.5 billion market cap, is next up on our list. The California-based company designs, manufactures and sells networking hardware, telecommunications equipment, and other IT products and services, and offers shareholders a dividend yield of 2.71%.
Shares of Cisco are up 10.4% in August so far, easily outpacing both the broader Nasdaq and Google. In fact, the shares just hit a new 52-week high of $57.52 as of this writing.
Like Google, a stronger-than-forecast earnings report is behind CSCO’s outperformance this month. Just one day after the results, Cisco stock closed 3.3% higher.
Revenue for the quarter was $15.2 billion, up 16% from the prior year and above the consensus estimate of $15.05 billion. EPS came in at $1.14, up 37% from the prior year and beyond expectations for $1.06. Impressively, the company’s EPS has topped the average Wall Street estimate in each of the past five quarters.
Looking ahead, earnings estimates remain positive for Cisco. Analysts expect 18.2% growth in the current quarter and 4.7% growth for FY 2023 overall.
Strategic moves in the AI space are also giving Cisco stock a boost. Cisco launched its AI networking chips in June, which the company claims will execute AI and machine learning tasks with 40% fewer switches and a lesser lag, while being more power efficient.
On its most recent conference call, the company revealed that its networking technology is already being used by some of the leading hyperscalers around the world to run their AI models. Notably, Cisco is a market leader in network equipment, and sees the security market within the AI domain as a strong avenue for future growth.
Overall, analysts are cautiously optimistic about Cisco stock as it explores new highs. The consensus rating is a “Moderate Buy” with a mean target price of $58.44, indicating upside potential of only about 2% from current levels. Out of 20 analysts covering the stock, 6 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 11 have a “Hold” rating, and 1 has a “Strong Sell” rating.
We round out our list with mobile app advertising company Applovin Corp (APP). The company’s software solutions help developers to manage, optimize, and analyze their marketing investments. It is used by over 700,000 mobile app developers, and the company’s advertising platform reaches over 1.5 billion mobile devices worldwide.
Applovin has the smallest market cap among our three featured stocks, at just $14.95 billion – but its shares have rallied the most this month, up more than 36% in August. Earlier, the shares found a new 52-week high of $43.24.
Once again, better-than-expected results for the second quarter and new developments on the AI front are behind the share price outperformance.
For the quarter ended June 30, Applovin reported revenues of $750.2 million – down 3.4% from the prior year, but above the consensus estimate of $724.41 million. Although the app revenue segment witnessed a decline, the software revenue segment – which made up more than 54% of total quarterly revenues – grew by 27.7% from the prior year, driven by AI enhancements.
Moreover, the company recently announced AI-driven advancements to its mobile user acquisition (UA) platform, AppDiscovery which will provide users with greater automation capabilities, increased accuracy in target consumers, and improved campaign effectiveness among others.
Applovin also swung to a profit of $0.22 per share in the second quarter, compared to a loss of $0.06 per share in the year-ago period. Analysts were looking for EPS of just $0.14 per share. Following the results, shares of Applovin gapped higher by more than 26%, and have continued to rise since.
Analysts are forecasting blowout earnings results to continue for Applovin, with 350% growth expected in the current quarter and 327.8% in FY 2023.
All in all, analysts are moderately bullish on the stock, with a consensus “Moderate Buy” rating – but the big rally in APP seems to have caught Wall Street off-guard, as the mean target price of $40.43 implies expected downside from today’s new annual high.
That said, the Street-high target of $50 indicates room for APP to keep running about 16% from current levels. Out of 16 analysts covering the stock, 11 have a “Strong Buy” rating, 4 have a “Hold” rating, and 1 has a “Strong Sell” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.