Seeking Alpha’s top Quant picks in Information Technology ahead of Q3 earnings

The S&P 500’s Information Technology sector (NYSEARCA:XLK) went down in the past three months, dragged by companies such as Super Micro Computer (SMCI) and Intel (INTC). The sector was one of the only losing sectors, besides the Energy sector.

The Information Technology sector (XLK) which holds 29.5% weightage on the S&P500, with tech giants like Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT), lost 0.96%in the quarter, compared to a gain of 5.25% in the broader market.

The sector has gained 17% so far this year, driven by an artificial intelligence frenzy, which has led a bull run in tech stocks.

According to Seeking Alpha’s Quant rating system, the sector has an average health score of 3.33. The system awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.

Taking a look at individual companies in the sector, nine stocks were rated as a Buy or higher based on their Quant ratings, 56 stocks are rated Neutral, while none of the stocks are considered Sell or lower.

Seagate Technology Holdings (STX) continued to hold the highest Quant score this quarter, of 4.77, while technology giant Microsoft (MSFT) took the second spot with a score of 4.60. Both companies owed their higher ratings to high grades in areas such as growth and profitability.

Sustained demand strength at cloud customers helped Seagate cling to its top position, while continued increase in Generative AI capital intensity and growing Azure momentum pushed Microsoft to second spot.

Other heavyweight names like Nvidia (NVDA) and Apple (AAPL) had Quant scores of 3.49 and 3.47, respectively. Nvidia shares fell even after the semiconductor giant reported fiscal second-quarter results and guidance that topped expectations, as investors grew concerned over slow returns from huge AI investments.

Micron (MU) and Adobe (ADBE), popular stocks in the sector, had Quant scores of 4.07 and 4.35, respectively.

Intel (INTC) which has lost more than 55% in market value so far this year, has the lowest Quant score of 2.59 in the sector. The chipmaker has been struggling to turn around its business amid dwindling profits and fierce competition.

Seeking Alpha analyst Josh Arnold pointed out that technology stocks have led the 2024 rally but have since declined sharply, with XLK’s performance suffering in part due to heavy reliance on Microsoft and Nvidia, however said he sees a potential year-end rally after further declines.

Goldman Sachs updated its 2025 EPS estimate for the Information Technology sector due to a recovery in the semiconductor cycle and said strength in mega cap tech will also support EPS in Info Tech and Comm services.

Meanwhile, a FactSet report projected that eight of eleven sectors will report year-over-year earnings growth, with double-digit growth expected from the Tech sector.

“The Information Technology sector is expected to report the highest earnings growth rate of all 11 sectors at 15.2%,” the report said, adding that Nvidia is expected to be the largest contributor to earnings growth for the sector.