Growing digitalization across several industries is expected to drive continued growth in technology spending around the globe as businesses prioritize innovation, efficiency, and resilience in a digital era. In addition, the development and widespread adoption of emerging technologies like AI, cloud computing, and IoT are expected to fuel growth in the tech sector.

Despite favorable industry trends, tech stocks Zebra Technologies Corporation (ZBRA), Riot Platforms, Inc. (RIOT), and IonQ, Inc. (IONQ) could be best avoided now, considering their weak fundamentals.

In recent years, rapid digital transformation has driven an enhanced focus and investment in technology across several sectors, including healthcare, telecom, automobile, manufacturing, and more. Enterprises are undertaking digitalization initiatives to modernize their operations, enhance customer experiences, and stay competitive in the digital age.

According to the recent forecast by Gartner, global IT spending is projected to reach $5 trillion in 2024, up 6.8% from the previous year. Moreover, spending on IT services is expected to grow 8.7% year-over-year to $1.50 trillion this year.

Enterprise spending on software and IT services — particularly artificial intelligence, cloud computing, and cybersecurity technology— will likely enable the most growth in the tech sector. The IT services market is expected to total $1.81 trillion by 2029, growing at a CAGR of 8.4% from 2024 to 2029.

Businesses further are increasingly investing in tech hardware to support their digital transformation efforts, including upgrading infrastructure, adopting cloud services, and enhancing cybersecurity. The adoption of AI and machine learning technologies requires powerful computing hardware, leading to demand for high-performance servers, GPUs, and specialized chips.

Also, emerging technologies like virtual reality (VR), augmented reality (AR), and the Internet of Things (IoT) are driving demand for specialized hardware, sensors, and connectivity solutions. The IT hardware market is estimated to reach $191.03 billion by 2029, expanding at a CAGR of 7.7% during the forecast period (2024-2029).

Despite these encouraging trends, investors should avoid buying fundamentally weak tech stocks ZBRA, RIOT, and IONQ.

Let’s discuss the fundamentals of these stocks in detail:

Zebra Technologies Corporation (ZBRA)

ZBRA provides enterprise asset intelligence solutions in the automatic identification and data capture solutions industry globally. The company operates in two segments: Asset Intelligence & Tracking and Enterprise Visibility & Mobility. It offers dye-sublimation card printers, radio frequency identification (RFID) printers, temperature-monitoring labels, and more.

In terms of forward EV/EBITDA, ZBRA is currently trading at 18.23x, 18.4% higher than the industry average of 15.40x. The stock’s forward EV/Sales of 3.55x is 20.7% higher than the industry average of 2.95x. Its forward P/E multiple of 33.20 is 19.9% higher than the industry average of 27.70.

ZBRA’s net sales decreased 32.9% year-over-year to $1.01 billion during the fourth quarter that ended December 31, 2022. Its adjusted EBITDA came in at $155 million, down 54.1% from the prior year’s quarter. The company’s non-GAAP net income and non-GAAP EPS were $89 million and $1.71, declines of 63.8% and 64% year-over-year, respectively.

Analysts expect ZBRA’s EPS to decrease 38.4% year-over-year to $2.43 for the first quarter ending March 2024. Its revenue is expected to decline 18.5% year-over-year to $1.14 billion for the same quarter.

The stock has declined 8.3% over the past year to close the last trading session at $279.48.

ZBRA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

ZBRA has a D grade for Stability, Momentum, and Growth. It is ranked #31 among 46 stocks in the Technology - Communication/Networking industry.

In addition to the POWR Ratings stated above, ZBRA’s additional ratings for Value, Quality, and Sentiment can be seen here.   

Riot Platforms, Inc. (RIOT)

RIOT, with its subsidiaries, operates as a bitcoin mining company in North America. The company operates through Bitcoin Mining; Data Center Hosting; and Engineering segments. Also, it offers co-location services for institutional-scale bitcoin mining companies and critical infrastructure & workforce for institutional-scale miners.

RIOT’s forward EV/Sales of 10.34x is 250.9% higher than the industry average of 2.95x. Likewise, the stock’s forward Price/Sales multiple of 11.27 is significantly higher than the industry average of 2.92.

For the fiscal year that ended December 31, 2023, RIOT’s revenue from the Data Center Hosting segment decreased 26% year-over-year to $27.28 million. The company reported an operating loss of $63.05 million for the quarter. Also, its net loss came in at $49.47 million, or $0.28 per share, respectively.

Street expects RIOT’s revenue for the fiscal year (ending December 2024) to increase 60.9% year-over-year to $463.94 million. However, the company is expected to report a loss per share of $0.62 for the current year. Moreover, Riot Platforms missed the consensus revenue and EPS estimates in three of the trailing four quarters, which is disappointing.

The stock has gained marginally year-to-date to close the last trading session at $15.73.

It’s no surprise that RIOT has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system.

RIOT also has an F grade for Quality, Value, and Stability and a D for  Sentiment. It is ranked last among 76 stocks in the Technology - Services industry.

Click here to access additional ratings of RIOT (Momentum and Growth).

IonQ, Inc. (IONQ)

IONQ develops general-purpose quantum computing systems. It sells access to quantum computers of several qubit capacities. The company also offers consulting services related to co-developing algorithms on quantum computing systems and contracts associated with the development of specialized quantum systems.

IONQ’s trailing-12-month Price/Sales of 4.53x is 246.6% higher than the industry average of 1.31x. Similarly, the stock’s trailing-12-month EV/Sales multiple of 4.23 is 161.2% higher than the industry average of 1.62.

In the fiscal third quarter that ended September 30, 2023, IONQ’s operating costs and expenses increased 74.6% year-over-year to $48.33 million. Its loss from operations widened by 69.4% year-over-year to $42.19 million. Also, the company’s adjusted EBITDA loss worsened by 67.8% year-over-year to $22.41 million.

Furthermore, the company’s net loss widened by 86.8% over the prior year’s quarter to $44.81 million. Its net loss per share attributable to common stockholders came in at $0.22, worsening 83.3% year-over-year. Additionally,

Street expects IONQ’s loss per share to widen by 88.9% year-over-year to $0.17 for the fiscal fourth quarter that ended December 2023. Likewise, its loss per share for the fiscal year 2024 is estimated to worsen by 14.8% from the prior year to $0.74. Also, the company has failed to surpass the consensus EPS estimates in three of the trailing four quarters.

IONQ’s stock has lost 26.3% over the past six months to close the last trading session at $10.99.

IONQ’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system.

The stock has an F grade for Value and Stability. It also has a D grade for  Sentiment, Quality, and Growth. IONQ is ranked last among 36 stocks in the Technology - Hardware industry.

For additional POWR Ratings of IONQ (Momentum), click here.

What To Do Next?

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ZBRA shares were trading at $276.99 per share on Friday morning, down $2.49 (-0.89%). Year-to-date, ZBRA has gained 1.34%, versus a 6.90% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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