Tech stocks have had a strong run over the past few years despite all the market volatility. However, there are still bargains in the space that look poised to move higher. Let’s assess two bargain tech stocks that look ready for a bull run.
Alphabet
While Alphabet (GOOGL) (GOOG) has had a strong run over the past year, up 50%, the stock still remains a bargain. Valued at a forward price-to-earnings (P/E) ratio of about 23, the stock is trading at a discount both to where it has traded historically and compared to other leading artificial intelligence (AI) stocks like Microsoft.
This valuation comes despite the company’s strong first-quarter results. Its cloud computing business, Google Cloud, led the way with 28% revenue growth to $9.6 billion, powered by its AI hypercomputer, which can be used to efficiently and cost-effectively train and serve AI models.
Alphabet’s core search revenue, meanwhile, jumped 14% to $46.2 billion, while YouTube ad revenue climbed 21% to $8.1 billion. The company is using AI throughout its entire ad ecosystem to improve targeting and bidding, and even other areas like creative and measurement.
Meanwhile, at its Google I/O developer conference, the company announced it would begin rolling out AI overlays for its search results for more complex queries and questions. With Alphabet not currently serving ads on 80% of its searches, this new feature will open the door for the company to use new ad formats to monetize searches it currently does not make money on.
This makes Alphabet a bargain stock with a huge growth runway, and a top pick to buy ahead of a potential bull run.
Opera
Another bargain tech stock that is more under the radar is Opera Limited (OPRA). The web browser maker trades at a forward P/E of only 15 even though it is projecting to grow its revenue by 16% this year.
Opera offers a variety of internet browsers that have been designed to optimize speed and battery life. Its Opera GX browser was created to optimize gaming performance and has been its fastest-growing browser. The company has also been at the forefront of incorporating AI features directly into its browsers.
The company generates revenue in two primary ways. The first is simply through advertising. In addition, it has a revenue-sharing agreement with Google when people use one of its built-in search bars. Google just exercised its option to extend its agreement with Opera through the end of 2025 on current terms.
Meanwhile, Opera has been putting up strong revenue growth, with its first-quarter revenue climbing 17% to $101.9 million. Advertising revenue jumped 21% to $58.6 million, driven by the expansion of its Opera Ads platform. Search revenue grew 11% to $43.1 million.
Opera’s web browsers have long been popular in developing markets given their performance in places where internet speeds are not as fast. However, a big part of the company’s strategy has been to shift its focus to more valuable users in developed nations. This has been paying off, with the company seeing its first-quarter average revenue per user (ARPU) soar 24% to $1.34.
The company also generated solid operating cash flow of $31 million in the quarter, which it is using to build out a data center cluster in Iceland to help keep AI hosting costs contained. It has said that its own hosting costs in Iceland are one-tenth the cost of using a third party.
Opera also has an interesting hidden asset as well. The company owns an investment in OPay, a Nigerian fintech company backed by Softbank and Sequoia Capital China that grew its revenue 60% on a constant currency basis last year while quadrupling its user base. The company announced its first monthly profit early this month. Opera significantly wrote up the value of its investment to $253 million at the end of last year and will look to exit the position when the time is right. With only a $1.2 billion market capotalization for Opera, that is not a small investment.
Even without taking into consideration its OPay investment, Opera is a cheap stock that has been showing strong growth as it benefits from AI and increasing user adoption in developed markets. The European Union’s recent implementation of browser choice requirements, meanwhile, have helped it grow new iOS users in the region. With Opay, Opera stock is huge bargain.
Overall, Opera looks like a cheap tech stock growing strongly that is set for a bull run.
— Geoffrey Seiler
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Source: The Motley Fool