We recently compiled a list of the 10 Worst Affordable Tech Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Lyft, Inc. (NASDAQ:LYFT) stands against the other affordable tech stocks.
The rapid advancements in Al, computing, and human-machine interaction are the critical drivers for global companies’ strong adoption of technology. Garner believes that agentic Al is expected to emerge over the next 2-3 years – with capabilities going beyond tasks such as summarizing information to taking action. While Al is being used to provide options to the users, this technology will be able to choose the option that is optimal for the user. Therefore, the most important use cases for Al in 2025 will involve the relationships between humans and machines.
The technology domain involves substantial innovation, ranging from groundbreaking Al and Machine Learning advancements to the transformative potential of blockchain and loT. Industry veterans believe that next year should be a transitional one for the generative Al as technology companies will focus on experimenting and finding applications that can help drive efficiency and productivity.
Global Growth with the Help of Cloud, Al, and Cybersecurity
The elevated interest rate environment, concerns regarding recession, and geopolitical challenges led to the slight weakening of global technology spending in 2023. Now, experts are seeing a light on the horizon.
Economists have become more optimistic about the US economy, for the tech sector specifically. Due to strong adoption trends of Cloud and Al, global analysts are now optimistic about a potential return to modest growth in 2024, with stronger prospects for 2025.
Deloitte believes that global IT investments should be aided by double-digit growth in spending for software and IT services in 2024. There are expectations that public cloud spending might see an increase of more than 20%, with stronger demand for cybersecurity. Al investment (not specifically about generative Al) should also contribute to overall spending growth. Economists continue to project that Al-related investments might touch $200 billion globally by 2025, led by the US.
Market experts believe that cybersecurity should play an important role in the comeback. Deloitte recently highlighted that analysts continue to project low double-digit growth in global spending on security and risk management from 2023 to 2024. Adoption should be fueled by the persistent threat landscape, ongoing cloud adoption, the emergence of generative Al, and data privacy and governance regulations.
On the software front, Deloitte projected that nearly all the enterprise software companies will be embedding generative Al in at least some of their products in 2024 and that the revenue uplift (for such companies and cloud providers of gen-Al processing capacity) should approach a US$10 billion run rate by the year-end. On the hardware front, Deloitte believes that the uplift for chips and servers executing generative Al should exceed US$50 billion in 2024.
Technology Trends Defining the Future
The major technology trends are expected to create opportunities, result in innovation, and become imperative to gain a competitive edge in the business world. While AI and ML continue to top the list of tech trends likely to dominate the future, experts believe that Robotic Process Automation (RPA), Blockchain Technology, Industry Cloud Platforms, and Machine Customers are also on the list.
RPA helps organizations to transition to dynamic norms of automating organizational repetitive tasks with effectiveness and high precision. It revolves around employing software robots that perform tasks, like entering data and other related tasks, exactly like humans. Infosys believes that the global RPA market should touch ~$13.74 billion by 2028, reflecting a CAGR of 32.8%. With leading companies reaching the end of the learning curve, the full benefits of RPA are becoming visible. The exponential requirements for automation, a target of increased productivity, and lower operational costs should act as growth drivers.
Next, machine customers refer to AI systems that are empowered to make purchase decisions and have autonomous communication with a business. The technology leverages the options, data, and algorithms to think and transact. As per Gartner, CEOs expect that ~15% – 20% of their revenue should come from machine customers by 2030. The potential to convert billions of machines into customers offers opportunities worth trillions.
Our methodology
To list the 10 Worst Affordable Tech Stocks to Buy According to Short Sellers, we used a Finviz screener to filter out the stocks in the technology industry and we chose the ones having high short interest. Next, we narrowed our list and chose the stocks that are trading at less than the forward earnings multiple of ~22.53x (since the broader market is trading at ~22.53x, according to WSJ). Finally, these stocks were ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? 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 ridesharing passenger and driver in a car, looking out the window in anticipation of their destination.
Lyft, Inc. (NASDAQ:LYFT)
Short % of Float (As of 30 August 2024): 13.71%
Forward P/E as of 23 September 2024: 17.18x
Lyft, Inc. (NASDAQ:LYFT) offers online ridesharing services. The company provides ride booking, payment processing, and car transportation services.
The short sellers believe that Lyft, Inc. (NASDAQ:LYFT)’s stock might decline in the remainder of 2024 as there are concerns related to the slowdown in the bookings growth. Lyft, Inc. (NASDAQ:LYFT) anticipates an increase in rider incentives, which might lead to a potential margin compression. Moreover, a competitive landscape and varying market conditions might also weigh over the broader business performance. The macroeconomic concerns about the consumer and interest in autonomous vehicles might act as headwinds for the company’s performance. The company’s nascent venture, Lyft Media, is exposed to significant risks as the company might struggle to establish a foothold and attract sustained advertiser interest.
On the other hand, Wall Street believes that Lyft, Inc. (NASDAQ:LYFT)’s growth should be supported by both ride frequency and ride conversion. The analysts are optimistic regarding the commercialization and monetization of autonomous vehicle technology. Lyft, Inc. (NASDAQ:LYFT) is expected to see enhanced user experience and driver supply as a result of new features such as price lock and improved driver incentives. The company expects positive FCF for FY 2024, with over 90% of adjusted EBITDA anticipated to convert to free cash flow for 2024.
The company’s partnership strategy, which includes a media partnership with Disney, should continue to aid its growth. Its large platform and experience with AV integration have positioned the company well for the future AV market.
Piper Sandler reiterated an “Overweight” rating on the shares of Lyft, Inc. (NASDAQ:LYFT), setting the price objective of $24.00 on 7th June. Lyft, Inc. (NASDAQ:LYFT) was part of 53 hedge funds’ portfolios in the second quarter.
Overall LYFT ranks 9th on our list of the worst affordable tech stocks according to short sellers. While we acknowledge the potential of LYFT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than LYFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.