By Jacob Sonenshine

The time has come to buy the dip in technology stocks, especially a few select names.

The State Street Technology Select Sector SPDR exchange-traded fund is down about 5% from a record high reached in late October. Investors have sold the stocks to lock in profits in response to concern that demand for software based on artificial intelligence won't be strong enough to justify their vast spending on data centers and other infrastructure. Lower spending, or plans to increase it less quickly, would reduce expectations for chip demand.

The result of that selling is that tech stocks look attractive, as Barron's pointed out earlier this week. Valuations are lower, and there is little evidence that those ugly scenarios are about play out. Forecasts for earnings at software companies have risen in the past few months, while plans to significantly increase capital spending remain on track. Expectations of profits for chip makers have increased as a result.

So Jonathan Golub, chief equity strategist at Seaport Research Partners, put together a list of potential picks from those dynamics: tech stocks that have had "unjustified" drops. He identifies companies whose stocks have declined even as analysts have lifted their forecasts of earnings for the next 12 months. The idea is that while valuations for those stocks are now less demanding, the outlook for profits is improving, setting the stage for gains if earnings rise.

Some names on the list were Nvidia, Broadcom, Cadence Design Systems, Dell Technologies, Oracle, Microsoft, Palantir Technologies, Docusign, Dropbox, Cloudflare, Fortinet, Autodesk, and Match Group.

Another is Zscaler, a $35 billion provider of cybersecurity software. The stock has fallen by 30% in the past three months even though earnings have exceeded expectations in all of the past 20 quarters, according to FactSet.

The stock got hit hard after Zscaler reported its third-quarter earnings in late November because expectations were extremely high. The forward price-earnings ratio was at the higher end of the range seen over the past three years. At the same time, the cybersecurity business is crowded, a reason for investors to shy away from stocks that look expensive.

An overcrowded industry threatening Zscaler's market isn't the story today. Analysts have lifted 2026 earnings estimates by just over 3% in the past three months, and the recent earnings report only upheld those forecasts.

The company has continued to execute on its game plan. Analysts forecast sales will increase by 20% to about $3.6 billion this year, while Fortune Business Insights expects 14% annual increases for the industry through 2034. That anticipated outperformance is an indication that the company is well positioned.

As revenue increases, earnings could rise even more rapidly. Analysts see the possibility of rising profit margins over the long term.

That could justify the current valuation. The forward price/earnings ratio, at 54 times compared with 74 just before the earnings, is now in the middle of the range for cybersecurity companies. Fortinet sells for 26 times and CrowdStrike is at 97 times, though the number is far higher for Cloudflare, which is barely profitable.

With the market now pricing in some risk, any stronger-than-expected growth can take the stock higher. Take a look at some of these names.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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January 09, 2026 14:56 ET (19:56 GMT)

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