3 tech value traps that are actually screaming buying opportunities

InvestorPlace – Stock news, stock advice and trading tips

In the wake of the pandemic, we’re witnessing the emergence of value traps across the tech landscape on Wall Street, but there are still plenty of undervalued tech stocks you can buy. The challenges faced by U.S. markets in the wake of the 2022 tech stock sell-off and the uneven impact of the generative AI boom have left some tech stocks trading well below their all-time highs recorded earlier in the decade.

For investors, this means that many technology stocks are valued much more attractively than they were a few years ago. But are they likely to recoup their losses? Or continue their downward trend? This underscores the dichotomy of the value trap.

Value traps are the illusion that an investment opportunity is attractively valued because it is trading at a much lower value than it has in the past. This makes stocks appear discounted, but fails to take into account the possibility that they may never return to their former glory.

While there is no guarantee that a value trap can lead to a market recovery, many technology stocks on Wall Street are trying to overcome their recent difficulties through innovation and offer plenty of potential for a market recovery. Here are three of the biggest examples of undervalued technology stocks:

Undervalued technology stocks: Zoom Video Communications Inc. (ZM)

During the pandemic Zoom Inc (NASDAQ:CM) became synonymous with remote collaboration during global lockdowns, offering users a way to stay in touch with friends and family when in-person contact was impossible.

However, in the post-pandemic period, the video communications platform fell behind its competitors and its stock value plummeted as a result. By the end of the second quarter of 2024, Zoom was 89.41% below its 2020 peak.

This could make the stock a classic value trap. However, Zoom appears to be an ambitious company with strong fundamentals.

The stock’s first-quarter 2024 earnings of $216.3 million on revenue of $1.14 billion are up 3.2% year over year, and non-GAAP earnings of $1.35 per share were well above Wall Street expectations of $1.19 per share on revenue of $1.14 billion.

Crucially, Zoom is keen to introduce generative AI tools into its services. With the launch of AI Companion, the video conferencing platform can automatically set up meetings, participants, start times, and other important metadata while monitoring call intent.

In the age of home working (From home) continues to gain momentum, and Zoom appears poised to leverage generative AI to offer next-generation services to its users. This attempt to out-innovate the competition, backed by positive fundamentals, could see the platform return as a major contender in the remote collaboration space. As such, I think it’s one of the most undervalued tech stocks to buy right now.

PayPal Holdings Inc (PYPL)

Source: Tada Images / Shutterstock.com

Another example of a stock that has suffered a significant decline after a pandemic boom is PayPal Inc. (NASDAQ:PYPL), which closed the second quarter of 2024 approximately 80.19% below its 2021 peak.

Despite the post-pandemic downturn, PayPal remains a leader in digital payments with 426 million active accounts and business activity in 200 markets worldwide.

The company’s first quarter 2024 earnings show significant growth potential, with total payment volume (TPV) increasing 14% year-over-year to $403.86 billion.

One of the biggest reasons for optimism at PayPal is the unveiling of a brand new advertising sales network. This network could use data and insights about user spending to create targeted recommendations. This could revolutionize the way merchants promote their goods to customers.

This added value to PayPal’s user data could be a springboard for the stock, which has struggled to gain momentum so far despite positive earnings reports in 2024. For investors, the inclusion of the new advertising network could provide an opportunity for sustainable growth for the struggling stock. I think it’s one of the most undervalued tech stocks.

Cisco Systems Inc. (CSCO)

Source: Valeriya Zankovych / Shutterstock.com

Despite his impressive longevity on Wall Street, Cisco systems (NASDAQ:CSCO) has struggled to build any meaningful momentum in the 2020s. Since the start of 2022, the stock has fallen more than 20% and has struggled to excite investors.

However, this could soon change as the communications group has announced the establishment of a groundbreaking $1 billion global investment fund aimed at scaling up and developing secure, reliable and trustworthy AI solutions.

The fund announcement represents Cisco’s first significant foray into artificial intelligence. Innovative startups such as Cohere, Mistral AI and Scale AI have already joined the company’s investment portfolio to strengthen Cisco’s position in the industry.

In addition, Cisco said it was “very optimistic” about its commitment to expanding business relationships with Chinese electric vehicle (EV) companies and supporting their overseas expansion.

This suggests that Cisco intends to penetrate deeper into global markets and support new technologies on a large scale. With such a commitment to innovation, CSCO’s reduced price is definitely worth tracking as the prospect of a market recovery becomes more tangible.

As of the publication date, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.

At the time of publication, the editor in charge did not own (either directly or indirectly) any positions in the securities mentioned in this article.

More from InvestorPlace

The article “3 Tech Value Traps That Should Actually Incentive You to Buy” first appeared on InvestorPlace.