SUPERNEWS

Macro

Tech Stocks Like NOW, ANET, NVDA Poised Against Inflation Surge

Tech and AI firms like Nvidia show resilience to inflation with strong margins and growth, despite broader market downturns.

By Bill Bullington

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4/9, 13:58 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Arista Networks, Inc.
ServiceNow, Inc.
NVIDIA Corporation
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Key Takeaway

  • Amid inflation concerns, stocks like ServiceNow (NOW), Arista Networks (ANET), and Nvidia (NVDA) show strong margins and growth potential.
  • Criteria for resilience include high gross margins (>60%), significant EPS growth (>15% over 3 years), and low debt-to-equity (<40%).
  • ServiceNow leads with a projected three-year EPS growth of 143.2%, while Arista Networks boasts nearly 62% gross margin and zero debt.

Inflation Concerns Resurface

As the second quarter unfolds, investors are grappling with the specter of persistent inflation and the prospect of enduring high interest rates. The S&P 500, Dow Jones, and Nasdaq have all experienced declines early in the month, with the S&P 500 down 1.5%, the Dow nearly 3%, and the Nasdaq shedding 1.1%. This downturn is partly attributed to rising commodity prices, including gold and crude oil, which have reached new highs, exacerbating inflation fears. The upcoming consumer price index (CPI) release is highly anticipated for insights into inflation trends, with economists predicting a 0.3% increase in March on a month-over-month basis. This data will be crucial for gauging the Federal Reserve's interest rate trajectory.

Select Stocks Show Resilience

In response to these inflationary pressures, CNBC Pro's Stock Screener has identified companies with the financial fortitude to navigate a potential inflation resurgence. These firms boast high gross margins, significant earnings growth over the past three years, and low debt-to-equity ratios, positioning them as resilient contenders in a challenging economic landscape. Notable mentions include ServiceNow, with a projected three-year earnings growth of 143.2% and a low debt-to-equity ratio, and Arista Networks, which has seen its shares jump more than 23% this year, thanks to zero debt and a gross margin of nearly 62%.

AI and Tech Firms Lead Amid Inflation

Despite the broader market's struggles with inflation, certain tech companies, particularly those involved in artificial intelligence (AI), have demonstrated remarkable growth and resilience. Nvidia, for instance, despite a 6.2% pullback this quarter, remains a standout with a gross profit margin of 72.7% and significant earnings growth. This resilience underscores the potential for well-positioned tech firms to not only withstand inflationary pressures but also capitalize on the transformative opportunities presented by advancements in AI and other technologies.

Street Views

  • Brad Reback, Stifel (Bullish on ServiceNow):

    "Looking forward, our checks pointed to better-than-expected 2Q deal pipelines. Large enterprises who had historically been averse to 3rd party solutions and relied on home-grown ITSM/ITOM platforms, are beginning to make the shift to ServiceNow’s product set given the reliability, sustainability, and breadth of solutions found within the platform."