2 Top Tech Stocks to Buy Before they Soar in the Second Half
The upbeat day might signal that investors are learning lessons from the initial trade war fears, betting that Trump and his administration likely do not want to crush the U.S. economy or the stock market.
Investors could still take profits on high-flying tech stocks heading into Q2 earnings season.
Thankfully, the bulls should remain in charge as long as AI and tech-boosted earnings growth holds up. Plus, the Fed is still projected to cut interest rates again in 2025.
Now might be a good time for investors to start buying tech stocks that are trading well below their all-time highs before they possibly surge in July and beyond.
Lumentum LITE designs and manufactures optical and photonic technologies for high-speed telecommunications, data centers, and advanced manufacturing. LITE provides components, such as transceivers and lasers for fiber-optic networks, supporting the rapid growth of artificial intelligence, cloud computing, 5G connectivity, and beyond.
Its industrial lasers are used in precision manufacturing, such as cutting semiconductors and solar cells. Lumentum also develops 3D sensing laser diodes for applications like facial recognition in smartphones and autonomous vehicle sensors. Despite this backdrop, Lumentum stock only climbed 10% in the past five years while the Tech sector soared 110%.
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Lumentum's revenue growth plateaued after 2019, driven by multiple headwinds. LITE announced in May 2019 that it had discontinued all shipments to Huawei after the U.S. government forced tech companies to stop supplying the Chinese smartphone maker due to national security concerns.
Wall Street also grew worried about Lumentum's overreliance on Apple for its growth in a slowing iPhone market. On top of that, Covid-based inventory corrections, macroeconomic pressures such as inflation, and trade restrictions dragged LITE down over the past several years.
Thankfully for investors, Lumentum is turning the corner, boosted by surging AI demand. Lumentum crushed our EPS estimate by an average of 42% in the trailing four quarters, including a big beat-and-raise Q3 FY25 in early May. Its upbeat earnings revisions land LITE a Zacks Rank #1 (Strong Buy).
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Lumentum's next-generation optics are helping create energy-efficient AI networks, which is critical in the power-hungry AI space. New CEO Michael Hurlston, who took over in February, said LITE's innovations are 'driving transformative power efficiencies across cloud, AI, and long-haul networks, making us an essential partner in this next era of connectivity.'
LITE is projected to grow its revenue by 20% in FY25 and 33% next year to surge from $1.36 billion in FY24 to $2.17 billion in FY26, crushing its previous peaks. Better yet, the tech innovator is projected to double its adjusted EPS in FY25 (+95%) and FY26 (+111%) to reach $4.16 a share. Some of Lumentum's growth is driven by its late-2023 acquisition of Cloud Light Technology.
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Lumentum shares have kept pace with Tech over the past decade despite its huge underperformance over the last five years. The stock is neck and neck with Tech in 2025 and up 60% in the past year to crush its sector's 8% run. LITE completed a long-term golden cross, where its 50-week moving average overtook its 200-week, in May.
A strong earnings report could help it finally break out above its 2021 peaks after several failed attempts. Lumentum stock also trades at a 40% discount to Tech on the price/earnings to growth ratio front.
Customer relationship management standout HubSpot HUBS posted blockbuster growth over the last decade as companies big and small race to digitalize every pocket of their businesses. HUBS stock has roughly tripled the Tech sector during that stretch, fueled by massive growth that took it from $182 million in 2015 revenue to $2.6 billion last year.
Despite outrunning Tech in the last three and five-year stretches, HUBS trades 30% below its highs even as the Tech sector ripped to fresh records to close the first half. HubSpot stock cooled on the back of slowing sales growth compared to its days of 30% to 50% expansion and its inability to consistently post profits.
Yet, HubSpot could be ready to break out and return to all-time highs given its robust adjusted earnings and revenue growth outlook.
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HubSpot's solutions are designed to help its clients attract customers, build relationships, and keep them happy. The business software company launched its Breeze artificial intelligence platform last year, integrating HubSpot's AI tools throughout its entire CRM platform.
Its AI-powered customer platform helps businesses grow by managing marketing, sales, customer service, content, operations, and beyond more efficiently than ever before.
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The Cambridge, Massachusetts-based company is projected to expand its revenue by roughly 16% in 2025 and 2026 to reach $3.51 billion, adding nearly $1 billion to its top line vs. 2024. It is expected to grow its adjusted earnings by 15% and 21%, respectively. HUBS has beaten our quarterly earnings estimates for five years in a row, and its recent upward earnings revisions earn it a Zacks Rank #1 (Strong Buy).
HubSpot trades 30% below its 2021 highs after getting firmly rejected at those levels in February. HUBS stock is trading right near its 21-day moving average, and it's held its ground at or near its long-term 200-week moving average several times in the past year.
The 200-week moving average was one of Warren Buffett's longtime right-hand man, Charlie Munger's, favorite technical indicators for buying long-term stocks.
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It might be worth taking a chance on HubSpot for near-term upside to its peaks and long-term AI-boosted growth. Plus, the company's robust balance sheet is helping it buy back stock. Wall Street is also still very high on the stock, with 26 of the 33 brokerage recommendations Zacks has at 'Strong Buys.'
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HubSpot, Inc. (HUBS) : Free Stock Analysis Report
Lumentum Holdings Inc. (LITE) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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