3 Undervalued Tech Stocks with Big Long-Term Potential

Today, we will talk about three undervalued technology stocks in a year where the technology sector has emerged as a major player in 2024. The Invesco QQQ Trust ETF (NYSEARCA: QQQ), which tracks the Nasdaq 100 Index, has surged over 16% year-to-date (YTD). This incredible performance reflects the continued innovation in the technology sector, including developments in the field of artificial intelligence (AI). Strong earnings recently announced by many technology companies are also boosting investor sentiment. While the technology giants dominate the headlines and market caps, a select few “undervalued” technology stocks remain under the radar, waiting to be unlocked for their true potential.

Often overshadowed by market noise and temporary setbacks, these undervalued tech stocks have the perfect combination of talent, technology, and market opportunity to become tomorrow's industry leaders. Finding these hidden gems can give smart investors a huge edge in the market and big profits. So in this article, we'll highlight three undervalued tech stocks with great long-term potential.

DataDog (DDOG)

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First up on our list of undervalued tech stocks is security platform Datadog (NASDAQ:DDOG), a leader in the cloud monitoring space. The company's platform helps businesses get real-time insights into the performance and health of their IT infrastructure, allowing IT teams to proactively identify and troubleshoot issues and optimize overall IT efficiency.

In early May, Datadog announced its Q1 2024 financial results. Total revenue increased 27% year over year to $611 million, exceeding the high end of its guidance range. Adjusted net income and diluted earnings per share (EPS) both increased by more than 90%, to $157.6 million and 44 cents, respectively. Of particular note, the company added 3,340 customers with annual recurring revenue (ARR) of $100,000 or more, up 15% year over year.

Executives see strong secular trends of cloud migration and digital transformation, which are driving demand for the company's platform. Additionally, Datadog recently enhanced its Artificial Intelligence for IT Operations (AIOps) suite with the release of IT Event Management. This new feature leverages AI-powered event correlation to help teams reduce alert fatigue and resolve issues more efficiently.

Though DDOG shares are down 2% year to date, the stock currently looks expensive at 70.9 times forward earnings and 19 times sales. Wall Street remains optimistic about DDOG stock, however. Analysts have a 12-month price target of $148.6 for DDOG, suggesting upside potential of 24%.

Block (SQ)

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Financial services and mobile payments company The Block (NYSE:SQ) is our next pick among undervalued tech stocks. Block offers tools such as Cash App for in-person and online payments, making transactions more efficient. Additionally, Block offers business banking services and Square Capital for loans and financing.

In the first quarter of 2024, Block reported strong earnings. Total revenue increased 20% year over year to $5.96 billion. Net income and diluted EPS soared more than 350% to $472 million and 74 cents, respectively. The Cash Apps division performed well, with gross profit up 25% year over year to $1.26 billion. Management raised its full-year 2024 guidance, highlighting the optimistic outlook.

In other words, Block has demonstrated strong financial performance and is implementing several strategic initiatives to drive future growth and profitability. Recently, Block announced several new platform integrations for food and beverage businesses, partnering with Seven Rooms, Restaurants 365 and Pop Menu. Block also introduced machine learning-powered app recommendations to assist merchants with product discovery.

Despite the performance, SQ shares are down 19% year to date due to Morgan Stanley (NYSE:MS) downgrading them to underweight in April and concerns over Bitcoin (BTC-USD) investments. As a result, the stock is reasonably valued at 19.45 times expected earnings and 1.7 times sales. Currently, analysts have an average 12-month price target for SQ shares of $93, suggesting room for upside of more than 45%.

Atlassian (Team)

Source: T. Schneider / Shutterstock.com

Rounding out our discussion of undervalued tech stocks is Atlassian (NASDAQ:TEAM), a software company known for its project management and collaboration tools. Atlassian offers Jira for agile software development, Confluence for knowledge sharing and collaboration, and Trello, an intuitive visual project management tool.

In late April, TEAM reported strong third-quarter 2024 results. Revenues surged 30% year over year to $1.19 billion, driven by strong performance in its cloud and data center divisions. Additionally, net income increased 68.5% to $232.5 million, and adjusted diluted EPS increased 65% to 89 cents. April also saw a leadership transition, with co-CEO Scott Farquhar stepping down after 23 years in the role. However, Farquhar remains on the board and serves as a special advisor.

Atlassian's long-term growth strategy includes a continued focus on three large high-growth markets: work management, software development, and service management. Meanwhile, Atlassian has migrated server customers to the cloud with minimal disruption, increasing adoption and improving profitability in higher market segments. Additionally, the company's new artificial intelligence tools are enhancing the capabilities of its software platform.

TEAM shares have fallen 34% since January due to management changes and uncertainty about the sustainability of growth. That said, Atlassian's ongoing product innovation, AI initiatives, and expansion into the upmarket could be a catalyst for growth. Currently, TEAM shares trade at 50 times forward earnings and 10.1 times sales. Finally, analysts have a 12-month price forecast for TEAM of $228.85, indicating upside potential of approximately 45%.

As of the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com's publication guidelines.

Dr. Tezcan Gegil began contributing to InvestorPlace in 2018. He has over 20 years of experience in the US and UK and has passed all three levels of the Certified Market Technician (CMT) exam. Publicly, he contributes to investing.com and The Motley Fool's UK website.

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