2 Nasdaq tech stocks that trade below the index P/E ratio

The price-to-earnings (P/E) for the Nasdaq index is 33.8. Even though we might think this is expensive when compared to the FTSE 100, it’s an index made up of high-growth stocks, with a good portion from the tech sector. Yet, when trying to hunt around for good value picks, here are two with ratios below the average.

Semiconductor focus

First up is Qualcomm (NASDAQ:QCOM). It’s a US-based semiconductor and telecommunications equipment company, with a share price down 4% over the past year.

It designs advanced semiconductors used in things like smartphones and automotive systems, as well as owning one of the deepest patent portfolios in wireless communications, including the essential 3G, 4G, and 5G standards (something I only just found out!).

The licensing segment is the profit engine, while chip sales drive scale and cash flow. I think this makes the business a good option for consideration, as it’s not as volatile in terms of earnings as other semiconductor shares that are purely reliant on the current AI boom. Of course, the surging AI demand is one reason why the stock could rally in coming years, but the fate of the company doesn’t rest on this alone.

It currently has a P/E ratio of 15.81, making it good value relative to the index. Going forward, it has the solid cash flow to enable further investment into whatever lane becomes the best opportunity, be it automotive, phones, AI chips, or something else.

One risk is the geopolitical exposure to China. The country accounts for over half of annual sales, so trade restrictions with the US could be painful depending on how things go.

An old favourite

Another idea is Cisco Systems (NASDAQ:CSCO). The business has been around for a while, but I often think of it as providing the plumbing of the internet. Most of us have (or currently do) use a Cisco product in some form, either in hardware or software form.

Over the last year, the US stock has rallied by 25%, yet the P/E ratio is still at 21.85. Although it’s not as cheap as Qualcomm, it’s still good value in comparison to the Nasdaq. The business model is steady, making money from selling products, providing software licenses, maintenance, and support contracts.

A big area of growth is selling security and cloud services, which I think could be something to watch in coming years. Cybersecurity is becoming more of a buzzword, and companies are allocating more money to this critical area. Yet even if this doesn’t take off, the firm is making 40% of revenue from recurring sales. This visibility of future revenue is something investors value highly.

One concern some might have is growing competition from new challengers. Cisco indeed needs to keep adapting in order to survive, especially in the innovative tech space.

I think both shares are good value that investors can consider if wanting to increase US exposure.

The post 2 Nasdaq tech stocks that trade below the index P/E ratio appeared first on The Motley Fool UK.

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Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended Qualcomm. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.