We recently compiled a list of the 12 Most Undervalued Tech Stocks to Invest in Now.In this article, we are going to take a look at where Amdocs Limited (NASDAQ:DOX) stands against the other undervalued tech stocks.
Will Tech And AI Be The Driving Force in 2025?
Katrina Dudley, global equity portfolio manager at Franklin Templeton Investments joined CNBC on December 31, 2024, to discuss which sectors are expected to continue with their gains in 2025. She mentioned that it is important to understand what sectors performed well last year to predict the future performance of the market. Dudley highlighted that technology was one of the sectors that worked well last year followed by some utility sector companies. The utility sector companies that performed well were mostly those power-producing companies that experienced increased demand due to AI. She emphasized that one of the themes she believes is secular and will continue to perform is the AI and the technology sector.
While talking about the high valuations of technology and communication services sector, Dudley acknowledged that these sectors are trading at lofty valuations above the S&P 500 index. However, she emphasized that valuations have never been a reason to sell something. It is important to unpack what high valuations are telling about the industry. She thinks that valuations at the moment reflect the number of things that the market is getting right. For instance, the earnings growth for these sectors has been positive, which is very different from the infinite bubble scenario. Moreover, the second contributing factor to higher valuations as explained by Dubley is the network effect, which is driving returns to the biggest players in the industry. Concerning these two points, she thinks there is a good rationale behind the tech stocks' high valuation.
Dudley also highlighted that one of the ways the valuation multiple can come down is when these companies grow their earnings ahead of market consensus. This she believes is one of the risks that the market should be cognizant about. As earnings growth for any company is difficult to predict and when the market is expecting the company to deliver earnings growth there is always a risk of mis-execution. Therefore these high valuation companies need to deliver on earnings growth. Dudley mentioned that she is not worried about the valuations however it is something that she would be watching closely.
Our Methodology
To compile the list of the 12 most undervalued tech stocks to invest in now, we used the Finviz stock screener, Seeking Alpha, and Yahoo Finance. Firstly, we aggregated a list of tech stocks trading under the Forward P/E of 15 with positive earnings growth expected this year. Next, we cross-checked the Forward P/E ratio of each company from seeking alpha and expected earnings growth from Yahoo Finance. Lastly, we ranked the stocks based on the number of hedge fund holders of each stock, sourced from the Insider Monkey Q3 2024 hedge funds database. Please note that the data for this article was collected on January 17, 2025.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A content manager using a suite of digital tools to optimize customer engagement.
Amdocs Limited (NASDAQ:DOX) is a software company that provides various tools that help businesses manage customer relationships, product life cycles, billing, and applications efficiently. Its major customers are communication and media sector businesses.
The company had a notable year in fiscal 2024. Despite facing challenges in industry demand it was still able to land significant contracts with major companies including AT&T, T-Mobile, and Vodafone Ziggo, among others, across North America, Europe, and Asia. Due to significant project wins throughout the fiscal year, Amdocs Limited (NASDAQ:DOX) reached record revenue of $5 billion, marking a 2.4% increase from the previous year. Its cloud services were a major contributor as it now accounts for 25% of its revenue.
Management is focusing on three main strategies which include cloud solutions, digital transformation for customer experience, and advancements in Generative AI technologies. To execute these strategies management on November 12, 2024, announced an enhanced amAIz platform. amAIz platform focuses on Generative AI capabilities aimed at improving customer engagement for communications service providers. The enhanced platform now includes specialized GenAI agents, such as GenAI Care and Sales Agents. These agents are designed to provide seamless customer support, handle billing inquiries, and facilitate sales interactions, thereby enhancing overall customer engagement. Moreover, its cheap valuation makes Amdocs Limited (NASDAQ:DOX) one of the most undervalued tech stocks to invest in now.
Palm Valley Capital Fund stated the following regarding Amdocs Limited (NASDAQ:DOX) in its Q3 2024 investor letter:
“The Fund’s top three contributors in Q3 were Lassonde Industries (ticker: LAS/A CN), Amdocs Limited (NASDAQ:DOX), and WH Group (ticker: WHGLY). Amdocs is one of the Fund’s larger positions. The stock appreciated during the quarter on record revenue and strong margins. The firm continues to facilitate digital and cloud migrations for the world’s leading telecommunications companies. Management has embraced the marketing opportunity from associating its services with AI (artificial intelligence), including tools used to streamline contact center call handling times. Recurring managed services revenue accounts for nearly 60% of the top line and includes agreements with many top providers such as AT&T, Vodafone, TELUS, and Charter. While the sell side sometimes seems to struggle with accepting Amdocs’ mature growth rates, we value the firm’s consistency and strong cash generation.”
Overall DOX ranks 9th on our list of the most undervalued tech stock to invest in now. While we acknowledge the potential of DOX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DOX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
