The S&P 500 and Nasdaq Composite have pulled back from their all-time highs since the start of the year amid rising concerns about an economic slowdown, potential tariffs, rising inflation, and interest rates going back up. At the same time, many of the top tech stocks are still trading near their all-time highs -- so value-seeking investors might still shy away from the heated sector.
But value-seekers shouldn't give up, there are still plenty of promising tech stocks trading at discount valuations. These three stocks check those boxes: DigitalOcean(NYSE: DOCN), Applied Materials(NASDAQ: AMAT), and Lumen Technologies(NYSE: LUMN). Let's see why these three cheap tech stocks are potential buys right now.
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1. DigitalOcean
DigitalOcean is a cloud infrastructure platform provider that rents out tiny "droplets" of its servers to small to medium-sized businesses (SMBs) for lower fees than enterprise-oriented cloud giants like Amazon and Microsoft generally charge. It also added GPU-powered artificial intelligence (AI) processing capabilities to its servers through its acquisition of Paperspace in 2023.
From 2020 to 2024, DigitalOcean grew its revenue at a compound annual growth rate (CAGR) of 25%. It also turned profitable in 2023, and it more than quadrupled its net income and EPS in 2024. Those robust growth rates indicated its niche market was growing and that it could keep expanding in the shadow of its larger industry peers.
From 2024 to 2027, analysts expect DigitalOcean's revenue and EPS to grow at a CAGR of 14% and 19%, respectively. Its business is maturing, but it still looks like a bargain at 22 times its forward adjusted earnings and 4 times next year's sales.
2. Applied Materials
Applied Materials is one of the world's top suppliers of semiconductor equipment. From fiscal 2019 to fiscal 2024 (which ended last October), its revenue and EPS increased at a CAGR of 13% and 25%, respectively, even as the semiconductor sector was rocked by the pandemic, supply chain disruptions, trade tensions, and other macroeconomic headwinds.
From fiscal 2024 to fiscal 2027, analysts expect Applied Materials' revenue and EPS to grow at a CAGR of 6% and 8%, respectively. Its near-term growth could be throttled by the tighter export curbs on its equipment sales to China, but it expects its long-term growth to be driven by the market's robust demand for more powerful AI chips, new energy-efficient chips, and denser memory chips. It also plans to lock in its customers with more integrated solutions that merge multiple steps (such as material deposition, etching, and material modification) into single systems.
Applied Materials is a cyclical stock, but it looks undervalued at 16 times forward earnings and 4 times next year's sales. It also pays a forward dividend yield of 1% and remains committed to plowing its free cash flow into big buybacks.
3. Lumen Technologies
Lumen, the telecom company once known as CenturyLink, was in serious trouble when its stock sank below $1 last June. Its revenue was plunging, it was racking up steep losses, and it had eliminated its dividend in late 2022. Its strategy of doubling down on wireline connections instead of expanding into the wireless market had backfired as the ongoing decline of its business wireline division offset the stronger growth of its fiber business.
Fortunately, a series of AI infrastructure deals with Microsoft and other cloud giants pulled Lumen back from the brink last year. Those big clients all hired Lumen to upgrade their data centers with more fiber optic cables to handle the surging usage of cloud and AI applications, and the cumulative value of those multi-year deals hit $8.5 billion at the end of 2024.
Analysts still expect Lumen's annual revenue to decline through 2027 as it stays unprofitable, but its AI deals and the growth of its consumer-facing fiber business could stabilize its long-term growth. It isn't out of the woods yet, but its enterprise value of $20.4 billion is less than twice its projected revenue for 2025. That discount valuation might limit its downside potential and set it up for a decent recovery over the next few years.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $323,920!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,851!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $528,808!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Applied Materials, DigitalOcean, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
