What a horrible week it has been for the broader markets, with shares of significant tech winners giving back a considerable amount in recent sessions. Indeed, tech's hot 2023 relief run may be running out of steam. Not even generative artificial intelligence tech seems impressive enough to reverse this latest market pullback.
These days, it is all about high-interest rates. It certainly is quite possible that many market participants underestimated just how hawkish the Federal Reserve can be. With more rate hikes up ahead, tech investors need to return to the drawing board to contemplate whether now is a good time to take some profits and run before the pull of rates has a chance to return.
The impact on generative AI and tech stocks
Of course, generative AI is still a big deal. However, the relative overvaluation in some of the names within the semiconductor space may very well be what drags the broader Nasdaq back into correction territory.
In this discussion, I will look at two impressive tech stocks that have been pulled down by rates in recent weeks. Although the long-term share price trajectory of both companies could not be more different, I still view deep undervaluation to be had in both names as the painful market dip takes its next step. Whether or not stocks finish the third quarter higher or lower from current levels, the following stocks, I believe, make for fantastic contrarian plays for value investors who are in it for at least the next five years.
Currently, database kingpin Oracle Corp. (ORCL) and former semiconductor king Intel Corp. (INTC) look like terrific value options for those who are brave enough to jump in after the market's recent spill.
Shares of Oracle (ORCL) ended Thursday lower by just over 3%, mostly due to negativity facing the broader tech sector. The stock is now down more than 13% from its all-time high hit back in June and could be destined for lower levels as the upbeat AI play looks to take a dive.
Undoubtedly, not too many investors saw the impressive upside surge of 2022-23 coming. Oracle is an older tech company that seemed to have lost its way prior to the glorious bounce at the hands of the AI boom. In any case, the recent pullback should not have come as a surprise after shares nearly doubled in around a year's time. The real question now is how far does the AI stock have to fall before it is time to get back in?
Value and future prospects
Of course, it is impossible to tell when Oracle will bottom out. However, after its recent correction, I do view plenty of value to be had currently, even as negative market momentum accelerates from here.
At the time of writing, shares of Oracle trade at a modest 32.47 times trailing price-earnings. That is not all too high for a $300 billion tech titan with impressive AI capabilities. Of course, the company's latest quarterly earnings results failed to impress. First-quarter revenue came in on the lighter side at $12.5 billion, down from the $13.8 billion it posted in the quarter prior. Earnings per share numbers came in at $1.19, topping the analyst consensus of $1.15. Still, such a modest beat is not enough to cut it these days, especially for the stocks bid up due to the rise of the AI trend.
Earlier this month, Oracle was downgraded by Morgan Stanley from overweight to neutral over concerns that growth has peaked. While management is bullish on generative AI, it is unclear as to whether it will be enough to jolt growth rates as other pressures weigh.
My takeaway? Short-term pain could be ahead, but brave investors should be looking out for a longer-term gain.
Intel (INTC) is another old-school tech company that could become more relevant in the AI age. The stock has already endured a painful drop of more than 63% to multiyear lows. So far in 2023, it has been mostly positive as the stock has steadily climbed back, now up 29.6% year to date. Indeed, Intel's stock was oversold, but if it is to keep the good times going strong in the face of economic headwinds, the company needs to go big on AI.
Position in the AI race
An analyst over at Melius Research recently remarked on the company's position in the AI race. Though it is a latecomer, Intel cannot be counted out.
Intel CEO Pat Gelsinger recently remarked on AI, noting that its AI chip named Gaudi remains a “strong, open alternative in the AI market.” Undoubtedly, AI advancements could be key to Intel stock's multiyear reversal. For now, many investors are not so convinced that Gaudi can give other AI chips a good run for their money.
Regardless, I believe Intel's muted AI ambitions could pave the way for big gains moving forward. The stock trades at 19.7 times forward price-earnings, which is incredibly cheap for a company that appears to have jumped on the AI bandwagon.
Originally published on GuruFocus.com