Tech Turnaround? 2 Recovering Tech Stocks I'd Buy This Earnings Season
Written by Joey Frenette at The Motley Fool Canada
With tech stocks fresh off a somewhat better-than-expected slate of quarterly earnings results, the growth trade may have what it takes to reheat as we head for the second half of the year. Indeed, in the face of tariffs and a potential recession, it's only prudent to resist the temptation to overpromise.
For now, there may be more of an incentive to sandbag to lower analyst expectations for future quarters, given it's tough to tell what the next few weeks and months could hold, let alone the year ahead.
In any case, I find the following two recovering tech stocks to be worthy buys after posting decent earnings results. While the tech sector is bound to face far more volatility than the rest of the market, I certainly wouldn't bet against them as they look to extend their relief rallies on the back of the generative AI trend.
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) stock has finally gained some ground after tumbling close to 30% from peak to trough. Indeed, many investors are jittery over the potential for antitrust action and the future of Google Search amid the continued rise of search-focused AI products (ChatGPT's new search button?).
Indeed, Google's moat is going to be put to the test. Still, with a strong showing at its 2025 I/O event, I'd argue there are enough AI drivers in the pipeline to push the stock back to all-time highs north of the $200 mark.
Whether we're talking about the intriguing AI Mode, the latest and greatest text-to-video model Veo 3, or the next frontier for Android, there's no shortage of innovations to get excited about. While investors aren't pounding the table following the I/O showing, I think the recent relief rally (up 17% since the April lows) is worth getting behind.
Will the opportunity to snag a few shares of GOOG or GOOGL at less than 20 times trailing price-to-earnings (P/E) last?
I have no idea. But I see shares as relatively cheap, even in the face of worrisome headlines that have caused some investors to throw in the towel.
Shopify (TSX:SHOP) is another high-tech darling that showed off plenty of promising AI features and concepts to the world in recent weeks. In a prior piece, I praised the firm for its new AI offerings while noting they'd likely give the e-commerce platform the charge it needed to grab more market share from its competitors.
While tariffs and the impact on coming quarters will be the talk of the town, I'd be more inclined to focus on how well Shopify can monetize its innovations. If they save a merchant time, money, or drive sales, I'd argue that a recession shouldn't detract from demand for such essential features.
As investors forgive (and begin to forget about) the latest quarter, which saw a bit of a slowing in merchant volume growth, perhaps SHOP stock can get revenue growth and margins back in the right spot. At the end of the day, investors should judge firms on how well they can overcome headwinds relative to industry rivals.
The $185.8 billion company may boast a sky-high 2.7 beta (that implies far more choppiness than the TSX Index), but if you're looking for a sound, fundamentally strong growth narrative that stands to get more attractive over time, it's hard to overlook the name at current levels.
The post Tech Turnaround? 2 Recovering Tech Stocks I'd Buy This Earnings Season appeared first on The Motley Fool Canada.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Alphabet. The Motley Fool has a disclosure policy.
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