If you find yourself with a bit of extra cash in your Christmas stocking this year, you might be thinking about some undervalued ASX stocks to add to your portfolio.
Here are two of my current favourites. One is a leading Aussie tech stock tapping into emerging AI trends by providing data storage solutions. The other is a former market darling down on its luck after releasing an underwhelming outlook for FY25.
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NextDC Ltd (ASX: NXT)
NextDC has been one of my favourite ASX tech shares to own for years now. However, as more companies incorporate artificial intelligence (AI) technology into their everyday operations, the bull case for NextDC only becomes more compelling.
NextDC is one of Australia's leading operators of data centres, which are physical facilities that store companies' data and other digital assets. NextDC's data centres are colocation facilities, which means multiple clients can rent space in the data centre at once. This allows companies to outsource their data storage needs so that they don't have to spend a fortune building their own technology infrastructure.
I think NextDC is a great share to buy right now because of how rapidly AI, automation, and digitisation are being adopted by large corporations. All this new data needs to be stored somewhere, which could drive a massive surge in demand for data centre space.
This is already starting to play out in the company's financials. Revenues were up 12% year-on-year to $404.3 million for the financial year ended 30 June 2024, while underlying earnings before interest, tax, depreciation and amortisation expenses (EBITDA) came in above the company's guidance at $204.3 million.
Audinate Group Ltd (ASX: AD8)
After surging to a 52-week high of $23.51 back in March, Audinate shares have since plunged almost 70% to just $7.31 at the time of writing. However, I think the market has unfairly punished Audinate shares, and they could offer investors an excellent buying opportunity at these prices.
Audinate is a growth stock aiming to disrupt the audiovisual (AV) technology industry. Its flagship product, called Dante, is designed to replace all the complicated audio and video connections of outdated analogue systems with a digital computer network. It simplifies complex AV systems without compromising sound or image quality, making them far easier to manage. Its customers include hospitality venues, sports and entertainment events, and even churches and other places of worship.
There are several good reasons to invest in Audinate. The company is an industry leader with significant intellectual property (IP) behind it, which makes it very difficult for new entrants to take away any of its market share. This gives it a considerable economic moat – something investors normally go gaga for.
Plus, Audinate's FY24 results (for the year ended 30 June 2024) were pretty strong. Revenues were up 28.4% year-on-year to $91.5 million, and EBITDA was a record $20.4 million.
However, investors were concerned about Audinate's near-term outlook. The company identified a number of headwinds that could negatively impact revenues in FY25, including shorter order lead times, higher inventory levels, and a slowdown in demand after the post-COVID recovery.
While the company did flag that it expected things to rebound in FY26, many investors decided they didn't want to wait that long and dumped their shares. But this mass sell-off could be a great buying opportunity for those who are still bullish about Audinate's long-term growth potential.
Speaking at the time of the results, Audinate CEO Aidan Williams said:
Whilst we expect FY25 to be a transitional year, the long-term strategic thesis for Audinate remains unchanged. With the challenges of the last few years behind us, we will redouble our efforts to drive audio & video unit growth, a key building block in our long-term strategy.
