Many tech stocks surged to record highs over the past year amid hopes for deeper interest rate cuts and an improved macroeconomic environment. But in this volatile bull market, it might seem tough to find bargains that are trading at reasonable valuations.
The average Robinhood Markets investment account is only worth about $6,000, so it might be tempting to chase the highest-growth stocks for the maximum returns. However, that strategy could backfire once a bear market begins.
So instead of chasing the hottest stocks, investors can split a $6,000 investment between three cheap tech stocks that look undervalued relative to their growth potential: Memory chipmaker Micron Technologies (NASDAQ: MU), mobile chipmaker Qualcomm (NASDAQ: QCOM), and networking giant Cisco (NASDAQ: CSCO). Here's why these three bargain buys are worth a closer look at the start of 2025.
Micron is one of the world's top manufacturers of DRAM and NAND memory chips. It doesn't lead either market, but it produces denser and more power-efficient chips than its two larger South Korean competitors, Samsung and SK Hynix.
The memory market is cyclical. Its latest decline occurred in 2023 as PC shipments declined, the 5G smartphone upgrade cycle ended, and headwinds in the broader economy drove more companies to rein in their data center spending. In fiscal 2023 (which ended in September 2023), Micron's revenue plunged 49% as it racked up an annual net loss.
But in fiscal 2024, its revenue surged 62%, and it turned profitable again. That growth was driven by the stabilization of the PC and smartphone markets, as well as data centers upgrading their servers to handle the latest generative AI applications.
Analysts expect its revenue and adjusted earnings per share (EPS) to grow 40% and 434%, respectively, in fiscal 2025 as that momentum continues. Those are incredible growth rates for a stock that trades at just 13 times forward earnings. Micron's valuation might be compressed by some near-term concerns regarding tighter export curbs and higher tariffs, but it could also be a great bargain at these prices once those tensions subside.
Qualcomm is one of the world's top producers of mobile system on chips (SoCs) and baseband modems. It also owns a massive portfolio of wireless patents, which give it a cut of each smartphone sold worldwide -- including devices that don't use its chips.
Qualcomm ranks second in the smartphone SoC market after MediaTek, but its Snapdragon SoCs still dominate the premium Android market. It also sells 5G baseband modems to companies like Apple, custom chips for connected vehicles and Internet of Things (IoT) devices, and CPUs for Windows PCs and servers.
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However, Qualcomm still generates most of its revenue from the cyclical smartphone market. Its revenue soared 32% in fiscal 2022 (which ended in September 2022) as people bought new 5G smartphones, but fell 19% in fiscal 2023 as that upgrade cycle cooled off. Macroeconomic headwinds, especially in China, exacerbated that slowdown.
In fiscal 2024, its revenue and adjusted EPS rose 9% and 21%, respectively, as the smartphone market stabilized, it expanded its automotive chip business, and the macro environment warmed up again. For fiscal 2025, analysts expect Qualcomm's revenue and adjusted EPS to grow 11% and 14%, respectively. Based on those expectations, it looks cheap at 15 times forward earnings. It also pays a decent forward yield of 1.9%.
Cisco is one of the world's largest networking hardware and software companies. It operates in a highly saturated market, but its scale, its diversification, and the stickiness of its ecosystem give it major advantages against its smaller competitors.
Cisco's revenue only grew 1% in fiscal 2021 (which ended in July 2021) and 3% in fiscal 2022 as supply chain constraints curbed its sales of routers, switches, and wireless networking devices. In fiscal 2023, its revenue rose 11% as it resolved its supply chain issues and met the market's pent-up demand for new networking hardware.
But in fiscal 2024, Cisco's revenue and adjusted EPS declined 6% and 4%, respectively. Its growth cooled off because many of its customers had accumulated too much hardware, and the macro headwinds made it harder to deploy all those devices. However, analysts expect its revenue to grow 4% in fiscal 2025 as it laps those challenges and works through its inventory issues, even as the costs of integrating Splunk (which it acquired last March) reduce its adjusted EPS by 2%.
Cisco's growth should accelerate as the macroeconomic environment improves, and it still looks cheap at 17 times forward earnings. It also pays an attractive forward yield of 2.6%.
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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple, Cisco Systems, and Qualcomm. The Motley Fool has a disclosure policy.
Have $6,000? These 3 Stocks Could Be Bargain Buys for 2025 and Beyond was originally published by The Motley Fool
