The stock market appears to be entering a major rotation.
Over the past week, the largest tech and momentum stocks have started selling off. In particular, firms related to semiconductors and AI have seen their share prices plunge.
This could be normal profit-taking after the massive run-up over the past year. There are also concerns that the Republican presidential ticket could shake up the tech landscape, leading to challenges for the leading firms in the field.
However, the large companies’ struggles could be a benefit for smaller companies in the sector. Many small growth companies have been out of favor over the past year but could be set for a major turnaround as investors adjust to changing market conditions. These three smaller tech stocks to buy could be multibagger picks in the months and years to come.
Endava (DAVA)
Endava (NYSE:DAVA) is a consulting company that designs, implements and maintains software and information technology tools. It’s clients are primarily in the financial services sector, such as insurance, banks and payments processors.
Also, the core business model at Endava is to provide IT services via outsourcing. Essentially, Endava hires skilled IT workers in lower-cost-of-living countries such as Poland, Colombia and Vietnam and uses this workforce to fulfill IT contracts for multinational companies.
DAVA stock is down nearly 50% over the past year and has fallen over 80% from its all-time highs. Investors seemingly thought Endava would be an AI loser as artificial intelligence replaced IT professionals.
But cooler heads have now prevailed. Recently, Jeffries (NYSE:JEF) upgraded fellow digital platform engineering firm EPAM Systems (NYSE:EPAM), arguing that generative AI will add to (rather than subtract from) the total market opportunity for IT outsourcing companies.
Endava, for its part, saw a business slowdown over the past 12 months, but analysts see the company returning to growth in 2025. And Endava’s AI tools and solutions offering should see rapid growth as clients seek to implement these cutting-edge systems into their day-to-day workflows.
Unity Technologies (U)
Unity Technologies (NYSE:U) is one of the two primary graphics engines that video game developers use to produce their games.
Unity’s biggest appeal is its interoperability. A developer can build a game in Unity and quickly release it across consoles, PC, smartphones, augmented reality and virtual reality. In fact, reports suggested that Mark Zuckerberg considered acquiring Unity to make it a core part of the Oculus ecosystem.
U shares plunged from a peak of around $200 per share to less than $20 today. That’s totally understandable. Growth slowed down and the company tried to push through an unpopular price hike to its developers.
Unity ultimately walked back that decision and the CEO resigned to try to restore the company’s goodwill. So far, investors haven’t pardoned the company, with shares still trading near their all-time lows. But with shares at just 20 times forward earnings, and the company set to return to double-digit revenue growth in 2025, shares are a real bargain today.
Global Payments (GPN)
Global Payments (NYSE:GPN) is a leading payments company primarily focused on the merchant acquirer space. It provides the hardware, such as payments terminals, to retail establishments and supports that with software covering accounting, risk management, fraud detection, tax compliance and so on.
The company came into its present form following a massive merger with Total System Services. The move made Global Payments a leading player in the industry and scaled up operations just in time for the pandemic-driven e-commerce boom. The firm’s broad product offering, such as helping merchants accept digital wallets, proved just right for the moment.
Payments stocks enjoyed a boom during the stay-at-home period when investors were focused on the rapid growth in e-commerce and digital services. As that trend played out, however, sentiment turned and payments stocks collapsed in value.
Some of Global Payments’ peers were dramatically overvalued and deserved to sell off. But Global Payments is running just fine. In fact, the company is trading at less than nine times forward earnings. And analysts see the company continuing to grow earnings at a double-digit rate going forward. That sets Global Payments up for potential multi-bagger status once sentiment improves.
On the date of publication, Ian Bezek held a long position in DAVA, U and GPN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.