We recently compiled a list of the 8 Unstoppable Tech Stocks to Buy Now. In this article, we are going to take a look at where Dave Inc. (NASDAQ:DAVE) stands among the unstoppable tech stocks to buy now.
What’s Happening with Big Tech Stocks?
The technology sector has outperformed the market for the past several years. The industry has accounted for more than 30% of the overall market holdings especially led by Big Tech. One of the key factors that skyrocketed the stock prices for these mega-cap tech stocks is the hype around artificial intelligence.
However, we also witnessed the technology sector going into what analysts call an “AI Bubble”, where companies’ revenues are not justifying the large capital expenditure on artificial intelligence. We recently covered the 13 Best American Tech Stocks To Buy According to Short Sellers. We discussed how Big Tech has led the American stock market for several years. Here’s an extract from the article:
This dynamic progress was reflected in the US stock market when it rose more than 3% in the second quarter of 2024. In terms of the trade in artificial intelligence, technology companies remained at the top, and this trend did not appear to be slowing down throughout the quarter. The largest companies have outperformed the market this year, which has been a remarkable trend. The 500 largest companies’ large-cap market saw gains of 4.4% in Q2 YoY, increasing its 2024 return to above 15%. In contrast, the small-cap market saw a 3.3% drop, translating into a 1.6% 2024 return.
On the other hand, if we look at the recent figures the story tends to present a different picture. Almost a week ago, on August 30, CNBC reported that most of the Magnificent Seven were lower for the week, with investors’ favorite chipmaker taking the biggest hit after it fell short of largely inflated earnings expectations.
Dan Niles, Niles Investment Management founder and portfolio manager, joined CNBC on the same day suggesting investors to look outside of just the Magnificent 7 for the rest of the year. He mentioned that the companies have now declined on average 4% the day after reporting results, against rising 4% after releasing results in the first quarter.
He explained that this downward trend is a fundamental shift, pointing out that if we look at the financials of these stocks and forget the hype for a moment. We will see all these companies reporting their forward revenue estimates going down. Dan Niles acknowledged that it’s popular to talk about AI as these companies are leading the market but at some point, investors want some digestion of the capital expenditure, which has been going up consistently.
The portfolio manager also presented his bull case thesis for the 493 stocks in the S&P 500 stocks. He mentioned that if you look at the market on July 16, this was the time when the S&P 500 hit its all-time high. Since then it has been down around 1%, whereas the Magnificent Seven have been down around 8%.
He mentioned that if you are looking to invest, look for areas that benefit from the rate cuts. Niles mentioned areas like consumer staples, utility, telecom services, and other sectors of the market because he believes that the other 493 stocks will drive the market to new records. Lastly, Niles clarified that he still likes tech stocks but mentioned that it’s the other stocks that are going to benefit from the rate cuts during the rest of the year.
Our Methodology
To curate the list of 8 unstoppable tech stocks to buy now, we used the Finviz stock screener. We screened for technology companies that have gained at least 50% on a year-t0-date basis, as of September 10. We then selected the highest gainers that were the most popular among elite hedge funds. The stocks are ranked in ascending order of their year-to-date performance.
Why do we care about what hedge funds do? 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 customer using the personal financial management tool to navigate their finances.
Year-to-date Share Price Gain as of September 10: 287.24%
Number of Hedge Fund Holders: 13
Dave Inc. (NASDAQ:DAVE) is an American financial technology company that helps individuals manage their finances more efficiently. It addresses a market of around 180 million customers which has grown 8% since 2021. The company helps people manage cash flow, improve savings through budgeting tools, get extra cash through short-term funds, and much more at minimal overdraft costs.
Dave Inc. (NASDAQ:DAVE) has been doing great both in terms of accelerating revenue growth and reducing its operational expenses. The fiscal second quarter marked the third consecutive quarter of revenue growth and the fifth consecutive quarter of reducing operational expenses. Its revenue grew 31% year-over-year to reach $80 million, whereas the 28-day Delinquency Rate improved by 80 bps.
Moreover, the company significantly improved its profitability with adjusted EBITDA improving by $28 million year-over-year, and also grew its ExtraCash by 37% to $1.19 billion. As a result of exceptional performance during the first half of 2024, management has raised its guidance to $310 million and $325 million, with adjusted EBITDA between $40 million to $50 million.
DAVE was held by 13 hedge funds in Q2 2024, with total positions worth $50.95 million.
Overall DAVE ranks 4th on our list of the unstoppable tech stocks to buy. While we acknowledge the potential of DAVE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
