Seizing the Opportunity: Two Tech Stocks to Consider Now
Many analysts have pointed out that the stock market seems overpriced. While this observation may hold some truth, it’s important to remember that it comprises thousands of companies with differing valuations. A careful look can still reveal promising deals.
No need to rummage through poor-performing stocks to find a bargain. Quality investments are available. For instance, Meta Platforms (NASDAQ: META) and Adobe (NASDAQ: ADBE) represent some of the leading tech firms globally, and their current stock prices are attractive for prospective buyers.
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Although Meta and Adobe are similarly priced, their performance this year has been starkly different. While Meta’s stock is close to its all-time high, Adobe’s has dropped by 30%. Let’s explore what’s going on with these tech giants and understand why they could be good investments for 2025.
Meta’s Momentum: A Strong Investment Choice
It’s rare for a stock to make buying lists after a surge of nearly 400% in just two years, but that’s the case with Meta Platforms. The company’s stock seems to be struggling to match the performance of its core business: advertising to the 3.29 billion users of popular social media platforms like Facebook, Instagram, WhatsApp, and Threads. This year, Meta is expected to generate around $163 billion in revenue, an increase of 21% from 2023. The company boasts a healthy profit, converting nearly a third of its revenue into free cash flow.
Despite this impressive growth, Meta trades at a forward price-to-earnings (P/E) ratio of 26. Analysts predict its earnings will grow by about 18% annually over the next three to five years, resulting in a PEG (price/earnings-to-growth) ratio of 1.4. Stocks with PEG ratios up to 2 or even 2.5 can still be considered bargains. Meta’s advertising sector is a powerful force, benefiting from a shift of advertising budgets toward online platforms.
The company is also making strides in artificial intelligence (AI), which adds further value. With a robust AI model and significant investments in its AI division (Reality Labs), which is not yet profitable, Meta has the potential to enhance its already strong business model. Investing in Meta now seems justified given its solid fundamentals.
Adobe: An Undervalued Tech Giant
Adobe stands tall among the largest technology firms globally, specializing in cloud-based creative software, such as:
- Creative Cloud: Tools for design, image, and video creation
- Document Cloud: A platform for PDF creation and editing
- Experience Cloud: Services for marketing and customer relationship management (CRM)
The company generates $21.5 billion in annual revenue, turning over 36% of that into free cash flow. However, Adobe’s stock has dipped this year due to new challenges. Fast-growing competitors like Canva and Figma have emerged, with Adobe even attempting to acquire Figma but backing out due to regulatory issues. Additionally, generative AI has raised concerns about whether it might replace some of Adobe’s product offerings.
Though potential disruptors shouldn’t be ignored, the sell-off of Adobe’s stock might be exaggerated. While AI can create images, it currently lacks the finesse required to rival Adobe’s established technology. Moreover, Adobe is incorporating AI into its existing products, which could ultimately strengthen its business rather than hinder it.
While AI technology continues to evolve, it remains a substantial leap before it can fully replace Adobe’s diverse tools. Presently, Adobe is still growing its revenue at nearly 10%, with analysts projecting a 15% annual earnings growth in the long term. The stock’s current PEG ratio is 1.5, reflecting its attractiveness. Investors considering Adobe should keep an eye on how AI and competition might affect the company. For the moment, the recent decline in stock price may present a solid buying opportunity.
A Golden Opportunity Beckons Investors
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- Nvidia: A $1,000 investment at our 2009 alert would be worth $362,166!*
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*Stock Advisor returns as of December 23, 2024
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe and Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and are not necessarily reflective of Nasdaq, Inc.
