10 Best Tech Stocks for the Next 5 Years

In this article, we will take a detailed look at the 10 Best Tech Stocks for the Next 5 Years.

Despite the massive bull run of 2023 and eye-popping gains of tech stocks like Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc (NASDAQ:META) and  Salesforce Inc (NYSE:CRM) fueled by the AI boom, many analysts believe tech companies are just getting started with AI innovation and the new era of gains that started after the launch of ChatGPT and generative AI in late 2022 has no end in sight. Short Hills’ Steve Weiss recently said in a program on CNBC that despite all the hullaballoo around AI, the AI products offered by companies like Microsoft are not “prime-day ready” as they still need a lot of refinements and tweaks along with innovation before they could be relied upon. Weiss, who is highly bullish on Alphabet, said that it’s not easy to break habits of users and concerns related to AI affecting Alphabet’s search business are overdone. But what does that mean for the broader AI industry? That companies are still playing around and testing the waters with their initial AI product announcements shows that in the next five to ten years we will see a lot of AI-related innovation that could further push the stock prices of mega-cap tech stocks higher.

The long rally of 2023 and a rebound in tech stocks in 2024 after a brief decline has also showed that the AI-led rally in tech stocks could not be labeled as a bubble. A Wall Street Journal report last year quoted Christopher Harvey, head of equity strategy at Wells Fargo Securities, who said that the rise of AI gave a boost to the stock prices of established, blue-chip companies which are backed by strong fundamentals.

“What you’re getting with these stocks is pristine balance sheets, stable earnings growth, mostly reasonable valuations, and you have that AI kicker,” Harvey reportedly said.

Enabling Tech Sector: Picks and Shovels for AI Technologies

Earlier this month, UBS said in a report that the demand for cybersecurity and AI is expected to skyrocket in the future, which could boost the enabling tech subsector. Enabling technologies enable the development, production and deployment of technologies like AI. Many call tech enabling companies “pick and shovel” companies that power the IT infrastructure. According to UBS estimates, the enabling tech subsector is projected to grow to $1.2 trillion by 2025.

UBS in its report listed nine tech enabling stocks that it believes can continue to grow through 2030.

Methodology

For this article we picked the nine stocks UBS recommended for the next few years through 2030 in its Global Equity Focus report mentioned above while the 10th stock in our list is backed by another expert recommendation by an analyst and a hedge fund manager. We ranked our list based on the number of hedge fund investors in these companies. Why hedge funds? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).

10. Baidu Inc (NASDAQ:BIDU)

Number of Hedge Fund Investors: 44

Chinese internet giant Baidu Inc (NASDAQ:BIDU) ranks 10th in our list of the best tech stocks to buy for the next five years. UBS said in its report highlighting top tech enablement stocks that a recovery in the ads market would bode well for Baidu Inc. UBS also said Baidu Inc’s (NASDAQ:BIDU) PE valuation is “undemanding” and its non-ads business is among the growth drivers for the stock.

Insider Monkey’s database of 910 hedge funds shows that 44 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Baidu Inc. The most notable stakeholder of Baidu Inc during this period was Panayotis Takis Sparaggis’s Alkeon Capital Management which owns a $332 million stake in Baidu Inc.

Ariel Global Fund made the following comment about Baidu, Inc. in its Q2 2023 investor letter:

“By comparison, after a strong run last quarter, China’s internet search and online community leader, Baidu, Inc. (NASDAQ:BIDU) declined alongside a correction in Chinese stocks attributed to weak gross domestic product. We believe this price action runs counter to the company’s solid business fundamentals. Baidu delivered a top- and bottom-line earnings beat in the period, driven by a recovery in ad and cloud revenues. The company continues to invest heavily in Artificial Intelligence (AI) and is launching a generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”

9. ASML Holding NV (NASDAQ:ASML)

Number of Hedge Fund Investors: 57

UBS is bullish on ASML Holding NV (NASDAQ:ASML), the Netherlands-based company that makes machines used in the development of semiconductors. UBS likes the stock due to the company’s pricing power and high industry barriers. ASML Holding NV recently posted fourth quarter results. Net profit in the quarter came in at 2.05 billion euros versus 1.86 billion euros expected. Net sales in the period jumped 12.5% year over year.

As of the end of the third quarter of 2023, 57 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in ASML Holding NV.

Like ASML, analysts are also bullish on Microsoft Corp, Meta Platforms Inc and  Salesforce Inc.

ClearBridge International Growth EAFE Strategy stated the following regarding ASML Holding N.V. in its fourth quarter 2023 investor letter:

“Another welcome change has been the recognition of generative artificial intelligence (AI) opportunities for companies outside the U.S. While our IT holdings trailed their mega cap U.S. counterparts for most of the year, semiconductor equipment makers ASML Holding N.V. (NASDAQ:ASML) and Tokyo Electron, which we consider enablers of AI, as well as enterprise software maker SAP and IT consultant Accenture, which we see as facilitators of AI adoption in new product lines and/or enhanced business models, rose strongly in the quarter. These companies are rolling out new, AI-enhanced products at higher prices which should positively impact earnings in the near term. On an individual stock basis, the largest contributors to absolute returns in the quarter included ASML and Tokyo Electron in the IT sector.”

8. Tesla Inc (NASDAQ:TSLA)

Number of Hedge Fund Investors: 81

Despite cracks appearing in the EV industry amid regulation, costs and a declining interest from users, many analysts believe the future of the auto industry belongs to EVs. Cathie Wood, who has a five-year investment time horizon for her stock picks, continues to believe Tesla will soar in the next few years. In a latest program on CNBC, Wood said most car sales in the next five years would be electric. Cathie Wood believe Tesla Inc (NASDAQ:TSLA) stock would reach $2000 by 2027. Famous investor Ron Baron, who founded Baron Capital, also believes Tesla Inc stock could hit $1,500 by 2030.

Tsai Capital Corporation stated the following regarding Tesla, Inc. in its fourth quarter 2023 investor letter:

“Tesla, Inc. (NASDAQ:TSLA) ($248.48 – up 101.7% for the year. Recent high $299.29): Tesla has significant and underappreciated competitive advantages across multiple verticals including electric vehicles, software and energy storage. Misunderstood by much of Wall Street – and consequently a favorite of short sellers – Tesla continues to grow rapidly and increase its lead over the competition while delighting consumers in the process. Despite his unconventional (and sometimes off-putting) personality, Elon Musk is a visionary who has created enormous shareholder value. Musk is also a long-term thinker who has embraced the scale-economies-shared business model favored by Henry Ford and Jeff Bezos, intentionally reducing prices, increasing the customer value proposition and expanding the total addressable market. Tesla’s massive scale and cost advantages are now challenging the viability of legacy auto, which has hundreds of billions of dollars of outdated property, plant and equipment in a world that is rapidly transitioning to electric vehicles (EVs). While we expect competition for EVs to intensify and for Tesla to lose market share over time, we also believe the company will increase production and deliveries from approximately 1.8 million vehicles today to approximately 15 million vehicles in 2030 and further its lead in autonomous driving capability. In fact, we expect Tesla will eventually license its autonomous driving software, creating high-margin (70-80%), recurring licensing revenue. Tesla is also one of only two companies that dominate the energy storage market, which has the potential to grow to several hundred billion in revenue as power plants around the world increase their focus on renewable energy. Our investment in Tesla is aligned with our preference for companies that have strong balance sheets and the managerial skill to reinvest capital at high rates of return into large addressable markets.”

7. Broadcom Inc (NASDAQ:AVGO)

Number of Hedge Fund Investors: 87

Another semiconductor name in the list of the best stocks to buy for the next five years, Broadcom Inc (NASDAQ:AVGO) shares have gained about 109% over the past one year. UBS is bullish on Broadcom Inc due to 5G-related growth catalysts.

As of the end of the third quarter of 2023, 87 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Broadcom Inc. The most notable hedge fund stakeholder of Broadcom Inc was Fisher Asset Management which had a $1.7 billion stake in Broadcom Inc.

ClearBridge Multi Cap Growth Strategy made the following comment about Broadcom Inc. in its Q2 2023 investor letter:

“While the ClearBridge Multi Cap Growth Strategy has limited mega cap exposure, which has been a recent headwind to relative performance, we own several companies that stand to benefit from the explosive growth in generative AI. These holdings play key roles in building out the necessary infrastructure and helping customers leverage capabilities enabled by this emerging technology.

Semiconductor and software solutions provider Broadcom Inc. (NASDAQ:AVGO), for example, is an important supplier of networking chips that power ethernet switches and routers for connectivity between AI servers. The company sees quarterly revenue from this part of their business exceeding $1 billion in their fiscal third quarter, on a trajectory toward doubling over the course of the year.”

6. ServiceNow Inc (NYSE:NOW)

Number of Hedge Fund Investors: 99

UBS believes ServiceNow Inc (NYSE:NOW) will benefit from a growing demand of digital products as well as the AI automation trend. Earlier this month Goldman Sachs published a list of stocks it thinks are the best to hedge the tech drawdown risk. ServiceNow Inc made it to the list. Here is what Goldman Sachs said about this hedging strategy:

“For hedging the tech drawdown risk, we rank US listed hedging alternatives to XLK based on their sensitivity to the factor and current cost in the options market to identify optimal hedges below,” Goldman analysts wrote.

In addition to Microsoft Corp, Meta Platforms Inc and  Salesforce Inc, ServiceNow is one of the top stocks in the tech enabling sector according to UBS.

Polen Focus Growth Strategy stated the following regarding ServiceNow, Inc. in its fourth quarter 2023 investor letter:

“ServiceNow, Inc. (NYSE:NOW) continues to grow revenue and earnings at above a 20% rate, as they have for many years. The company has a software automation platform that efficiently builds applications on top of and across many enterprise functions. The NOW platform can automate almost any workflow previously done through email, spreadsheets, or some other less-than-efficient method. Its addressable market is very large because of the sheer breadth and depth of the tasks that can be automated by using its software. ServiceNow’s offerings tend to save customers money and make their workflows less prone to error. The company’s growth has been among the most consistent in our Portfolio prior to, during, and after the pandemic.”

5. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)

Number of Hedge Fund Investors: 107

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks fifth in our list of the best tech stocks to buy for the next five years. UBS believes Taiwan Semiconductor Mfg. Co. Ltd. has a “world-leading dominance in the semiconductor foundry industry.” UBS also thinks Taiwan Semiconductor Mfg. Co. Ltd. can tap into IoT and AI.

Over the past one year Taiwan Semiconductor Mfg. Co. Ltd. shares have gained about 20%. As of the end of the third quarter of 2023, 107 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Taiwan Semiconductor Mfg. Co. Ltd.. The most notable hedge fund stakeholder of Taiwan Semiconductor Mfg. Co. Ltd. was Ken Fisher’s Fisher Asset Management which owns a $2.6 billion stake in Taiwan Semiconductor Mfg. Co. Ltd..

Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited in its fourth quarter 2023 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was also a top contributor to performance. The Company began shipping chips that were fabricated using its industry-leading “N3″ node. Nearly all of the Company’s N3 capacity has been filled by high-end chip designers such as Apple, NVIDIA and even Intel. As high-performance computing, particularly related to AI in both data centers and edge devices, continues to build momentum, the Company will be a key supplier for many years to come. Despite the boom-and-bust cycle in demand seen for many semiconductors during Covid-19 and post-Covid-19, the Company should be able to post solid double-digit growth next year as inventories and end-market demand across most of its technology nodes get back to normal levels. The Company also maintains dominant market share in leading-edge nodes, which is in short supply, given the difficulties its competitors have had in scaling up EUV-based manufacturing. The Company has been able to secure higher prices because of this and can still generate excellent returns on elevated capital expenditures necessary for this scarce capacity. The Company is arguably one of a handful of the world’s most important and largest companies, but because the Company’s shares trade as an ADR (American Depositary Receipt) the shares are not part of the major stock market indices in the U.S. As a result, the shares are woefully under owned by U.S. investors (institutional and individual), particularly for a company that regularly generates cash flow return on invested capital in excess of +40%. Therefore, our growing position in these shares represent a significantly relatively overweight portfolio position versus our peers and benchmarks. We could not be more pleased by this anachronistic institutional imperative.”

4. Adobe Inc (NASDAQ:ADBE)

Number of Hedge Fund Investors: 112

Adobe Inc (NASDAQ:ADBE) ranks fourth in our list of the best technology stocks to buy for the next five years according to UBS. UBS likes the stock due to brand image and pricing power. UBS said Adobe’s launch of its generative AI model Firefly will help it with growth. The analyst firm is also bullish on Adobe Inc’s (NASDAQ:ADBE) transition to a subscription model.

As of the end of the third quarter of 2023, 112 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Adobe Inc.

Here is what Polen Global Growth has to say about Adobe Inc. in its Q3 2023 investor letter:

“Both Alphabet and Adobe’s businesses continue to perform well. With respect to Adobe, the most recent quarter delivered more of the same with constant currency revenue growing 13%, margin expansion, and over 2% of shares outstanding repurchased for non-GAAP earnings growth of over 20%. We believe its approach to GenAI through Firefly, which guarantees safe content because it trains on Adobe Stock, will continue to be attractive to enterprises. The counter to GenAI, and something we are keeping an eye on with Alphabet and Adobe, is that it requires heavy investment. While both businesses can leverage their scale and manage costs in other areas, we expect the investment in future growth through GenAI will weigh on company-wide margins over the near term.”

3. Salesforce Inc (NYSE:CRM)

Number of Hedge Fund Investors: 122

CRM company Salesforce Inc is one of the top tech stocks to buy for the next five years according to UBS. UBS thinks Salesforce Inc will continue to benefit from modest margin expansion, taking opportunities to upsell to its customer base.

Earlier this month, Baird analyst Rob Oliver said in a report that Salesforce Inc has an “attractive” risk-reward profile” heading into 2024 as front office spending will be better than expected.

“While macro continues to pressure seat-based software, we could potentially see upside from: price increases; potential return of front office spending, and crisper sales execution,” Oliver said.

Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. in its fourth quarter 2023 investor letter:

“In the fourth quarter, the top relative and absolute contributors to the Portfolio’s performance were Netflix, ServiceNow, and Salesforce, Inc. (NYSE:CRM).

Salesforce has continued to grow its revenues at what we see as a healthy rate despite market concerns about the impact of the weaker macroeconomy on its business and penetration rates in its core CRM offering. Even its most mature and largest offerings, Sales Cloud and Service Cloud, are still growing revenue at double-digit rates. In addition, management realized that their cost structure, especially in salespeople, had gotten too bloated. Over the past year and a half, the company has run a much more streamlined expense structure that has led to strong operating margin expansion and earnings growth. Importantly, we do not feel Salesforce has cut into its innovation or sales muscle through these cost cuts but has eliminated unnecessary excess fat from the organization.”

2. Meta Platforms Inc (NASDAQ:META)

Number of Hedge Fund Investors: 234

Meta Platforms Inc made it to UBS’s top tech enablement stocks to buy for the next five years because the investment firm is bullish on the advertisement strengths of the social media company.

As of the end of the third quarter of 2023, 234 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Meta Platforms Inc. The biggest stakeholder of Meta Platforms Inc was Catherine D. Wood’s ARK Investment Management which owns an $110 million stake in Meta Platforms Inc.

Wedgewood Partners stated the following regarding Meta Platforms, Inc. in its fourth quarter 2023 investor letter:

“Meta Platforms, Inc. (NASDAQ:META) was a leading contributor to performance for the quarter – and the year. Core advertising revenue growth accelerated to +23% while operating margin rebounded strongly from a year ago. The Company has been a consistent beneficiary of artificial intelligence (AI) over the past several years, investing aggressively in deep learning recommendation systems that help power its products, which reach nearly half the population of the planet. Meta Platform’s AI investments, combined with its massive scale, allow the Company to quickly spin up new products across its digital advertising real estate to reinforce its competitive positioning. For example, the Company’s relatively new Reels product is just over two years old, yet it has driven a +40% increase in the time Instagram users spend on the app. Reels content and other content served up to Instagram users is often driven by several very large and expensive AI recommendation systems that must sort through billions of datapoints in real time and come up with a probability of a user engagement. The Company is one of the few companies that has been able to consistently and profitably monetize AI technologies for shareholders and we continue to hold it has a top position in our portfolios.”

1. Microsoft Corp (NASDAQ:MSFT)

Number of Hedge Fund Investors: 306

UBS believes integration of AI with Bing search would help Microsoft Corp gain market share in the search industry. UBS also believes in the next few years Microsoft Corp’s (NASDAQ:MSFT) push to monetize its AI offerings would drive “incremental” revenue growth for the company. Morgan Stanley earlier this month said over the next 12 months Microsoft Corp’s (NASDAQ:MSFT) generative AI tools would give it a boost. Morgan Stanley cited its survey of CIOs in which about 68% of CIOs said they plan to adopt Microsoft Corp’s (NASDAQ:MSFT) generative AI solutions at some point in the next year.

Morgan Stanley analyst Keith Weiss increased his price target on the stock to $450 from $415.

Polen Focus Growth Strategy stated the following regarding Microsoft Corporation in its fourth quarter 2023 investor letter:

“The largest relative detractors in the quarter were Illumina, Airbnb, and Microsoft Corporation (NASDAQ:MSFT). Microsoft’s business continues to grow well, albeit at slower rates than in the previous few years. That said, it was a relative detractor to the Portfolio because our 7% average weighting for both the quarter and the year were significantly lower than the 12% benchmark weighting in the Russell 1000 Growth. Microsoft shares appreciated a benchmark-beating 19% in 4Q and 58% in 2023.

In addition, we also expect generative AI to help not just Microsoft’s Azure cloud service business grow, but also to be an additional growth driver for the company’s Productivity Suite (Word, Excel, PowerPoint, etc.) and Power Platform, which helps build internal apps for businesses.

Microsoft has created generative AI co-pilots, which are bots that use large language models (LLMs) to make a customer’s Microsoft software even more functional. As an example, co-pilot offerings from Microsoft can take text and data from Word and Excel and automatically create a PowerPoint presentation from it. We expect to see generative AI demand from Azure customers becoming a larger contributor to growth of that segment while Microsoft Co-pilot becomes a premium feature of the high-end Microsoft commercial bundles, leading to better pricing. Given the strength of the company’s existing businesses and the expected strong product cycle driven by generative AI advancements, we chose to add to our Microsoft position. It is now our second largest position behind Amazon.”

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Disclosure. None. 10 Best Tech Stocks for the Next 5 Years was initially published on Insider Monkey.