Given the strength of the stock market (especially among technology stocks) since the start of 2023, finding bargains in the tech space has gotten harder. Tech stocks have led this latest market rally, as evidenced by the approximate 80% climb in the Nasdaq-100 during that time. Their strong performance has made many of these stocks expensive to buy now.
And yet, not all tech stocks have joined in this rally ... at least not yet.
There are at least three cheap tech stocks with real potential for growth that investors can look to buy now. I currently own all three of these stocks. Here's what attracted me to them.
1. UiPath
After a strong performance in the stock up until the end of last year, UiPath (NYSE: PATH) finds itself in the bargain bin after it recently issued disappointing guidance and its CEO resigned.
The artificial intelligence (AI) automation software company helps companies automate everyday business tasks such as data entry as well as understand and process documents such as invoices. Its platform also tracks automation performance metrics and performs quality assurance, while newer solutions like its Intelligent Document Processing (IDP) offering can extract, interpret, and process data from various types of documents whether digital or even handwritten.
The company has done a nice job growing within its existing customer base, as evidenced by its dollar-based net retention of 118% last quarter. However, it has struggled to add new customers, despite forming a number of recent partnerships. While this has been attributed to competition from the likes of Microsoft and its new AI offering, Copilot, it is worth considering that with AI still relatively new, many organizations are still mapping out their AI strategies and how best to implement these plans.
As such, software providers are more likely to be part of the second leg of AI growth rather than the initial beneficiaries. Meanwhile, the recent sell-off has put UiPath stock in the bargain bin trading at under 5 times on a forward price-to-sales (P/S) ratio. Taking into consideration the $1.9 billion in net cash and marketable securities on its balance sheet, the stock trades at an enterprise-value -to-forward-sales ratio of just 3.6 times. That's just plain cheap for a software company that is still growing nicely and has strong potential prospects ahead.
PATH PS Ratio (Forward) data by YCharts
2. Docusign
While UiPath has done well growing within its customer base but has struggled to add new customers, Docusign (NASDAQ: DOCU) has had the opposite problem. The e-signature company is growing its customer count nicely, including adding 50,000 customers last quarter. However, its net dollar retention in the quarter was 99%, showing the struggles it has growing within its existing customer base.
Softness in markets like real estate, where there are a lot of electronic document signings, certainly played a role, while there also was some pull forward in demand when the COVID-19 pandemic struck. However, the company has been looking to innovate and transition into a platform business. It's added a number of new features and solutions and will combine its e-signature and contract lifecycle management (CLM) products into its new Intelligent Agreement Management (IAM) solution.
With a forward price-to-earnings (P/E) ratio under 16 and an enterprise value-to- EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 10.4, the stock is cheap. Note that the latter metric considers its net cash position and takes out noncash expenses.
DOCU PE Ratio (Forward) data by YCharts
Overall, Docusign's stock looks inexpensive given the potential of its IAM solution and planned transition to a platform company. As such, I would be a buyer on the recent price dip.
3. Alphabet
On the other side of the spectrum, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) stock recently hit all-time highs. And yet, trading at a forward price-to-earnings (P/E) ratio of just 24 times, the stock is among the cheapest megacap tech stocks out there.
GOOGL PE Ratio (Forward) data by YCharts
The company has a dominant position in search with Google and will look to incorporate AI overviews into its results when most appropriate. Over time, Alphabet should find new ways to monetize its AI search results with new ad forms and start profiting off the 80% of its search results that do not include ads. That offers a potential long runway for growth.
Meanwhile, its Google Cloud services are already nicely benefiting from increased AI usage. The high fixed-cost business recently turned profitable and now looks set to strongly grow its profitability now that it has reached scale. At the same time, its YouTube business is one of the premier and most profitable video services out there and is just beginning to monetize its short-form videos.
Taken all together, Alphabet is a cheap tech stock that looks like a good buy at current levels despite recently reaching all-time highs.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet, Docusign, and UiPath. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Docusign, Microsoft, Nvidia, and UiPath. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .
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