We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Technology Services Stocks to Consider Despite Industry Challenges
Read MoreHide Full Article
The Technology Services industry is expected to reach pre-pandemic levels eventually, enabling regular dividend payments. The rising adoption of remote work, swift global digital transition and technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) will propel industry expansion. Also, rising concerns about data security will provide an impetus for the industry to grow.
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems. This industry caters to consumer and business markets, and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions, and technology-enabled financial services for consumers and small business owners.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with the demand for services remaining healthy over time. Revenues and cash flows are expected to eventually reach pre-pandemic levels, aiding most industry players in paying out stable dividends.
Economic Recovery: According to the Bureau of Economic Analysis, GDP rose at an annual rate of 2.2% in the second quarter of 2026 compared with 2.5% in the first quarter of 2026. It highlights a steady economic expansion as opposed to a contraction. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for 27 months.
Technological Advancement Takes Center Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and AI. The United States, a significant player in the IT sector, is positioned for growth on the widespread adoption of smart technologies and increased investments in security. Companies are increasingly adopting generative AI, ML, blockchain and data science to gain a competitive advantage. Per Statista, the GenAI market is anticipated to see a 22.4% CAGR to $1.3 trillion by 2032.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #159. This rank places it in the bottom 36% of 247 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector & S&P 500
The Zacks Technology Services industry and the broader Zacks Business Services sector have declined, while the Zacks S&P 500 composite has grown over the past year.
The industry has fallen 19.9% over this period versus the broader sector's 14.9% decline and against the Zacks S&P 500 composite's 20.9% rally.
1-Year Price Performance
Industry Valuation Surpasses Sector, Remains Below S&P 500
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 16.93X compared with the S&P 500’s 18.27X and the sector’s 10.25X.
Over the past five years, the industry has traded as high as 29.65X and as low as 10.37X, with the median being 14.31X, as the charts below show.
EV-to-EBITDA
3 Technology Services Poised for Growth
Coherent: This company develops and produces lasers, optical materials and semiconductors. COHR is well-positioned to capitalize on the upsurge in AI infrastructure investments, rising demand for optical connectivity and expanding manufacturing capacity. In the fourth quarter of fiscal 2026, the company’s Datacenter and Communications segment revenues soared 59% year over year, highlighting solid demand for high-speed optical networking solutions.
The rising adoption of 800G and 1.6T transceivers presents significant growth opportunities. Expansion in 6-inch indium phosphide manufacturing capacity should raise production volumes, enhance yields and reduce manufacturing costs. Management anticipates internal output capacity to double year over year by the end of the first quarter of fiscal 2027, improving its ability to address customer demand.
Coherent’s $3-billion revenue target by the end of fiscal 2027 is bolstered by its solid financial performance. The company reported a 34% year-over-year increase in its top line during the fourth quarter of fiscal 2026, accompanied by a 74% upsurge in its bottom line. Solid bookings growth, long-term customer agreements and margin expansion should improve earnings visibility.
The Zacks Consensus Estimate for its fiscal 2026 bottom line has increased 11.9% in the past 60 days. Coherent shares have escalated 171.6% in a year.
GigaCloud Technology: This is a prominent player in the global B2B e-commerce technology solutions for large parcel merchandise. The company is benefiting from swift market expansion, international growth and strategic buyouts, supporting persistent growth momentum.
GCT’s top line increased 28% year over year in the second quarter of 2026, driven by 23% organic growth. The bottom line also rose 28% year over year to $1.16 per share. Gross merchandise value (GMV) rose 21% year over year, while active buyers and third-party sellers grew 17% and 26%, respectively, solidifying marketplace network effects.
The company’s growth engine is primarily fueled by European expansion, with GMV surging 66% year over year. Marketplace activity is further escalated by increasing third-party seller participation, improving operating efficiency. GCT derives additional growth from the New Classic buyout via expansion in product offerings, distribution capabilities and operational synergies.
GigaCloud Technology’s balance sheet is devoid of debt and holds $379 million in cash and $48 million in operating cash flow, strengthening financial flexibility. The authorized $120-million share repurchase program bolsters management’s commitment to shareholder returns.
GCT currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2026 EPS has moved up 17.7% in the past 60 days. GCTshares have surged 114.5% over the past year.
ScanSource: This company delivers hardware, software-as-a-service, cloud technologies, connectivity and physical security solutions to value-added resellers, partners and agents. The company is benefiting from rising technology demand, increasing recurring revenues and strategic initiatives targeted at bolstering its market position. Its growth momentum is supported by rising demand for physical security, mobility, networking, cloud computing and connectivity solutions.
Revenues moved up 17% year over year in the fourth quarter of fiscal 2026 and the bottom line jumped 43%. Specialty Technology Solutions revenues increased 18% year over year on the back of broad-based recovery in demand and the return of large deals.
MicroAge buyout presents significant growth opportunity, advancing the company’s presence in high-growth markets, including AI, cybersecurity, cloud and data centers. This should solidify its service portfolio and create cross-selling opportunities. Moreover, the company’s focus on recurring revenues, which increased 10.6% year over year in fiscal 2026, is enhancing business stability.
ScanSource’s strong cash generation supports its outlook. The company generated $114 million in free cash flow in fiscal 2026 and repurchased shares worth $98 million. Management is optimistic about raising organic revenues 6-10% in fiscal 2027, bolstering expectations for sustained business expansion.
SCSC presently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for its 2026 bottom line has increased 8.3% in the past 60 days. SCSC shares have gained 47.9% in a year.
View the Zacks #1 Rank List
Image: Bigstock
3 Technology Services Stocks to Consider Despite Industry Challenges
The Technology Services industry is expected to reach pre-pandemic levels eventually, enabling regular dividend payments. The rising adoption of remote work, swift global digital transition and technological advancements like 5G, blockchain, artificial intelligence (AI) and machine learning (ML) will propel industry expansion. Also, rising concerns about data security will provide an impetus for the industry to grow.
Coherent Corp. (COHR - Free Report) , GigaCloud Technology (GCT - Free Report) and ScanSource (SCSC - Free Report) are poised to gain from the prevailing trends.
About the Industry
The Zacks Technology Services industry encompasses companies involved in producing, developing and designing various software support, data processing, computing hardware and communications equipment. These offerings range from integrated powertrain technologies, advanced analytics, technology solutions and contract research services to semiconductor packaging and interconnect technologies, collaboration software, specialty printers, and data acquisition and analysis systems. This industry caters to consumer and business markets, and serves diverse end markets and customer segments. Additionally, some industry players offer advanced analytics, clinical research services, data storage technology and solutions, and technology-enabled financial services for consumers and small business owners.
Factors Structuring the Future of Technology Services
Rising Demand Environment: The industry is mature, with the demand for services remaining healthy over time. Revenues and cash flows are expected to eventually reach pre-pandemic levels, aiding most industry players in paying out stable dividends.
Economic Recovery: According to the Bureau of Economic Analysis, GDP rose at an annual rate of 2.2% in the second quarter of 2026 compared with 2.5% in the first quarter of 2026. It highlights a steady economic expansion as opposed to a contraction. Economic activities in the non-manufacturing sector are in good shape. The Services PMI measured by the Institute for Supply Management has stayed above the 50% mark for 27 months.
Technological Advancement Takes Center Stage: The global shift toward digitization creates opportunities in various markets, including 5G, blockchain and AI. The United States, a significant player in the IT sector, is positioned for growth on the widespread adoption of smart technologies and increased investments in security. Companies are increasingly adopting generative AI, ML, blockchain and data science to gain a competitive advantage. Per Statista, the GenAI market is anticipated to see a 22.4% CAGR to $1.3 trillion by 2032.
Zacks Industry Rank Indicates Dull Near-Term Prospects
The Zacks Technology Services industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #159. This rank places it in the bottom 36% of 247 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock market performance and current valuation.
Industry Lags Sector & S&P 500
The Zacks Technology Services industry and the broader Zacks Business Services sector have declined, while the Zacks S&P 500 composite has grown over the past year.
The industry has fallen 19.9% over this period versus the broader sector's 14.9% decline and against the Zacks S&P 500 composite's 20.9% rally.
1-Year Price Performance
Industry Valuation Surpasses Sector, Remains Below S&P 500
On the basis of EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation and amortization), which is commonly used for valuing staffing stocks because of their high debt levels, the industry is currently trading at 16.93X compared with the S&P 500’s 18.27X and the sector’s 10.25X.
Over the past five years, the industry has traded as high as 29.65X and as low as 10.37X, with the median being 14.31X, as the charts below show.
EV-to-EBITDA
3 Technology Services Poised for Growth
Coherent: This company develops and produces lasers, optical materials and semiconductors. COHR is well-positioned to capitalize on the upsurge in AI infrastructure investments, rising demand for optical connectivity and expanding manufacturing capacity. In the fourth quarter of fiscal 2026, the company’s Datacenter and Communications segment revenues soared 59% year over year, highlighting solid demand for high-speed optical networking solutions.
The rising adoption of 800G and 1.6T transceivers presents significant growth opportunities. Expansion in 6-inch indium phosphide manufacturing capacity should raise production volumes, enhance yields and reduce manufacturing costs. Management anticipates internal output capacity to double year over year by the end of the first quarter of fiscal 2027, improving its ability to address customer demand.
Coherent’s $3-billion revenue target by the end of fiscal 2027 is bolstered by its solid financial performance. The company reported a 34% year-over-year increase in its top line during the fourth quarter of fiscal 2026, accompanied by a 74% upsurge in its bottom line. Solid bookings growth, long-term customer agreements and margin expansion should improve earnings visibility.
COHR currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for its fiscal 2026 bottom line has increased 11.9% in the past 60 days. Coherent shares have escalated 171.6% in a year.
GigaCloud Technology: This is a prominent player in the global B2B e-commerce technology solutions for large parcel merchandise. The company is benefiting from swift market expansion, international growth and strategic buyouts, supporting persistent growth momentum.
GCT’s top line increased 28% year over year in the second quarter of 2026, driven by 23% organic growth. The bottom line also rose 28% year over year to $1.16 per share. Gross merchandise value (GMV) rose 21% year over year, while active buyers and third-party sellers grew 17% and 26%, respectively, solidifying marketplace network effects.
The company’s growth engine is primarily fueled by European expansion, with GMV surging 66% year over year. Marketplace activity is further escalated by increasing third-party seller participation, improving operating efficiency. GCT derives additional growth from the New Classic buyout via expansion in product offerings, distribution capabilities and operational synergies.
GigaCloud Technology’s balance sheet is devoid of debt and holds $379 million in cash and $48 million in operating cash flow, strengthening financial flexibility. The authorized $120-million share repurchase program bolsters management’s commitment to shareholder returns.
GCT currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2026 EPS has moved up 17.7% in the past 60 days. GCTshares have surged 114.5% over the past year.
ScanSource: This company delivers hardware, software-as-a-service, cloud technologies, connectivity and physical security solutions to value-added resellers, partners and agents. The company is benefiting from rising technology demand, increasing recurring revenues and strategic initiatives targeted at bolstering its market position. Its growth momentum is supported by rising demand for physical security, mobility, networking, cloud computing and connectivity solutions.
Revenues moved up 17% year over year in the fourth quarter of fiscal 2026 and the bottom line jumped 43%. Specialty Technology Solutions revenues increased 18% year over year on the back of broad-based recovery in demand and the return of large deals.
MicroAge buyout presents significant growth opportunity, advancing the company’s presence in high-growth markets, including AI, cybersecurity, cloud and data centers. This should solidify its service portfolio and create cross-selling opportunities. Moreover, the company’s focus on recurring revenues, which increased 10.6% year over year in fiscal 2026, is enhancing business stability.
ScanSource’s strong cash generation supports its outlook. The company generated $114 million in free cash flow in fiscal 2026 and repurchased shares worth $98 million. Management is optimistic about raising organic revenues 6-10% in fiscal 2027, bolstering expectations for sustained business expansion.
SCSC presently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for its 2026 bottom line has increased 8.3% in the past 60 days. SCSC shares have gained 47.9% in a year.