Inflation is currently rising at its fastest rate in 31 years. To compensate for this, the Federal Reserve is contemplating raising interest rates. Due to this expected inflation, many investors have pivoted away from high-growth tech stocks. This has created a flurry of potentially undervalued tech stocks whose stock prices have recently plummeted.

As a general rule of thumb, rising interest rates are bad for high-growth stocks in the short term. This is because higher interest rates can make other investments more attractive to investors. When they expect interest rates to rise, institutional investors tend to reallocate their funds to other assets. Even just the mention of rising interest rates is usually enough for investors to move their money.

If you are a long-term investor, this can create a great buying opportunity. In this article, I’ll break down five undervalued tech stocks that have fallen significantly from their all-time highs.

Let’s take look at five undervalued tech stocks that still have great potential.

Undervalued Tech Stocks to Invest In

No. 5 Chegg (NYSE: CHGG)

Chegg is an education technology company. It provides textbook rentals, online tutoring, and other student services. In 2020, Chegg was undoubtedly a winner of the coronavirus pandemic. Many schools were operating remotely and students turned to Chegg for help. This got investors excited about Chegg’s online-only approach to education.

In 2020, Chegg posted annual revenue of $644 million. This was a 56% increase from $411 million in 2019. It also posted a net loss of $6.22 million. This was also an improvement from 2019 when it lost $9.61 million.

Chegg stock surged about 180% in 2020. Since then, it is down approximately 85% from its all-time high.

In its Q3 2021 earnings report, Chegg noted that its slowdown is not unique. Web traffic is down for virtually all education sites, both free and paid. Despite this, management is still excited about the long-term market that Chegg is pursuing. In 2020, Chegg’s platform boasted 6.6 million annual subscribers. This was a 67% YoY increase from 3.9 million in 2019.

Chegg stock is up 65% over the past five years.

The next on this list of undervalued tech stocks could very well be the app that you visit if you decide to invest in any of these companies.

No. 4 Robinhood Markets (Nasdaq: HOOD)

Robinhood is a popular investing app that introduced commission-free stock trading. It went public in early 2021 at around $35 per share. Immediately after its IPO, Robinhood’s shares doubled to approximately $70 per share. Since then, Robinhood’s shares have lost approximately 85% of their value.

Robinhood has only posted a handful of earnings reports since it has not been public very long. In 2020, it posted annual revenue of $958.83 million. It also reported a total net income of $7.45 million.

One reason that investors might be souring on Robinhood is because of a slowdown in user growth. From Q2 to Q3 Robinhood’s total funded accounts fell slightly. Its monthly active users also dipped from 21.3 million to 18.9 million during this time as well.

Robinhood also posted a $1.32 billion loss in Q3 2021. This is most likely a key reason why the stock is falling. However, after looking at Robinhood’s earning report, this loss is mainly comprised of outsized administrative expenses. In particular, Robinhood paid out $1.24 billion in share-based compensation to executives in Q3 2021. This is a fairly common expense for newly-public companies.

Without this $1.2 billion expenditure, Robinhood’s financial statements would look much better. It’s very possible that the market is overreacting to Robinhood’s quarterly loss.

Despite the recent stock slump, there are definitely several reasons to be excited about Robinhood’s business. First, it’s incredibly popular with younger generations. Since younger generations tend to be more active on social media, this creates lots of organic word of mouth about Robinhood. In fact, 80% of all Robinhood’s users were obtained organically.

This type of organic growth is incredibly difficult to achieve. It is also an incredibly powerful free marketing tool. This short-term dip could make Robinhood one of the most attractive undervalued tech stocks out there.

No. 3 Roku (Nasdaq: ROKU)

Roku creates digital media players that give its users access to streaming services. In 2020, lots of people were quarantined inside. In their boredom, they bought a Roku and started streaming.

Roku’s stock enjoyed a huge run during 2020. Its stock surged about 240% and reached an all-time high of approximately $468. Since then, Roku stock has lost 80% of its value.

Roku’s shares are mainly been falling because it missed its latest earnings report. In its Q3 earnings call, Roku also warned investors about supply chain issues disrupting its business.

Despite this revenue miss, Roku’s business still seems strong. Roku posted a 2020 annual revenue of $1.78 billion. This was a 57% increase from $1.13 billion in 2019. Roku also posted a net loss of $17.51 million in 2020. This was an increase of 70% from $-59.9 million in 2019. Outside of this one revenue miss, Roku has beaten its revenue expectations 3 times in a row.

Roku has also clobbered analysts’ earnings per share (EPS) expectations. Over the previous quarters, it has beaten expectations by 3,030%, 537%, 350% and 666% respectively.

Roku’s Q3 earnings report also had plenty to be excited about. In Q3, Roku posted increases in net revenue, gross profit, and average revenue per user. Net revenue grew 51% year-over-year (YoY) to $680 million. Gross profit increased 69% YoY to $364 million. Roku’s average revenue per user (ARPU) also increased 49% YoY to $40.1. If it keeps up growth like this, Roku likely won’t on a list of undervalued tech stocks a few years from now.

Roku stock is up 270% over the past five years.

Undervalued Tech Stocks Opportunities

Looking for other tech stocks down from their all-time highs? Check out:

• DraftKings (Nasdaq: DKNG) – Down about 80% from its all-time high.
• Pinterest (NYSE: PINS) – Down about 70% from its all-time high.
• Alibaba (NYSE: BABA) -Down about 70% from its all-time high.

I hope that you’ve found this article valuable when it comes to learning a few of the top undervalued tech stocks to buy. As usual, please base all investment decisions on your own due diligence and risk tolerance. There are many investment opportunities to consider today…