Big Tech Leads in Shareholder Value Creation, but Only Three Giants Remain Undervalued
In the ever-evolving landscape of the stock market, Big Tech firms such as Nvidia, Apple, and Microsoft have emerged as frontrunners in creating shareholder value. However, a recent analysis by Morningstar suggests that only a select few of these tech giants, along with a healthcare behemoth, currently present undervalued investment opportunities.
Stocks with wide economic moats, a concept popularized by Warren Buffett, are often considered prime candidates for long-term investment. These companies are better positioned to fend off competition and maintain market dominance over extended periods, particularly crucial for firms heavily investing in emerging technologies like artificial intelligence (AI).
Amy Arnott, a Morningstar analyst, recently conducted a study examining stocks that have shown the greatest market capitalization increases from 2015 to 2024, including dividends. The results overwhelmingly favored Big Tech, with Nvidia leading the pack, followed closely by Apple, Microsoft, Amazon, Alphabet, Meta, Tesla, and Broadcom.
Despite their impressive track records, many of these high-flying stocks may not currently represent good buying opportunities, as their share prices often already reflect their strengths. Morningstar’s analysis indicates that only three major players – Microsoft, Alphabet, and UnitedHealth Group – are presently rated as undervalued.
Microsoft, driven by its AI innovations and the robust growth of its cloud computing platform Azure, is expected to see a slowdown in revenue growth but an expansion in operating margins. With a fair value estimate of $490 per share and currently trading near $391, Microsoft appears to offer a significant discount to investors.
Alphabet, Google’s parent company, has made substantial investments in AI and cloud computing. Despite facing capacity limits on its cloud platform, the company is projected to see operating margin expansion. Morningstar has increased Alphabet’s fair value estimate to $237, citing strengths in its AI-driven search engine and YouTube business.
UnitedHealth Group, while facing recent challenges including a former CEO’s shooting and a Medicare billing fraud investigation, remains an intriguing prospect for investors. With a fair value estimate of $590 and trading near $467, the stock appears undervalued. However, investors should remain cautious of potential healthcare policy changes and market volatility.
As the market continues to evolve, these undervalued stocks with strong economic moats may present unique opportunities for investors seeking long-term value creation. However, as always, thorough research and careful consideration of individual risk tolerance are essential before making any investment decisions.
