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Monday (2/14), the WSJ reported that Cisco CSCO was looking to acquire Splunk SPLK for over $ 20 billion, with designs on reinvigorating its innovative growth outlay. SPLK was the Nasdaq 100’s leading Valentine’s Day component, with an over 9% daily rally.
Splunk currently resides in that perfect Goldilocks’ valuation zone to be picked up by the recently cash-rich big tech firms. SPLK has slid 45% from its peak 1.5 years ago into this Goldilocks valuation range: $ 19.7 Billion market cap, 6.5x forward P / S, and undeniably market-disrupting potential in AI-driven machine data management and real-time actionable analytics.
I would not be surprised if other SPLK suitors came out of the fray before CSCO can lock anything in, as this leading real-time data management business begins proving a successful cloud transition.
Mega-cap tech’s recent windfall into oceans of digitally fueled capital has these firms looking high and low for ways to profitably deploy it. Stock buybacks are at record levels, but the valuation discounts that many next-generation innovators have fallen to can not be ignored.
There appears to be a Goldilocks valuation zone where big tech is looking to pick up new economy innovators after the January capitulation.
Goldilocks valuation range: $ 5 to $ 30 billion market cap, (preferably) below a 10x forward P / S, and market-disrupting potential.
I expect to see elevated M&A activity among young market disruptors in the coming months, so look out for companies in this Goldilocks valuation zone.
Stocks I’m eying: HubSpot HUBS, Upstart UPST, and Alight ALIT.
Even if these next-gen buys don’t get picked up, they’ll add sizable long-term growth potential to your portfolio for the future.
Take a look at my latest 4th Revolution video, which take a deeper dive into this subject: The Goldilocks Valuation Zone: Where Big Tech Discovers Innovative-Value
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Cisco Systems, Inc. (CSCO): Free Stock Analysis Report
Splunk Inc. (SPLK): Free Stock Analysis Report
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