In this article we are going to review the 10 best technology stocks to buy.
There are conflicting signals about the health of the US economy. On the one hand the labor markets are red hot, and on the other hand GDP has contracted for 2 consecutive quarters. S&P 500 has been falling since January 4th, and the stock market dipped into bear market territory earlier this year. Investors are scared of recession, selling their stocks and consumers are tight on their budgets. Russia’s war in Ukraine, lockdowns in China, and interest rate hikes by the Federal Reserve have deeply affected the markets. What are the best technology stocks to buy in this environment?
Technology is the biggest segment in the US market. Competition and innovation are abundant. The rise of technology is prominent in many industries and can be seen in our everyday lives. We are still seeing the massive transformative effects of the internet revolution today. The massive productivity increases and comprehensive distributions in labor markets over the last 25 years continue to be more prominent day by day. Technology stocks were clear winners over the last two decades. Over the last 12 months we have seen huge declines in certain pockets of the technology sector, and we believe this created a rare opportunity to invest in tomorrow’s winners.
In the midst of daily chaos: the ongoing war in Ukraine, post covid effects and Fed Reserve’s interest rate increases, investors should think about the long term and not be confused about daily market fluctuations. New technologies are emerging in the following five areas according to Cathie Wood: blockchain technology, genome sequencing, robotics, artificial intelligence, and energy storage. Silicon Valley and the West Coast have been a dominant place for the world’s technology companies such as Apple, Microsoft, Amazon, and Alphabet. Although Beijing’s Zhongguancun, Beijing’s Silicon Valley of China, is the world’s other leading place in technology. China is also focusing on the technology industry and is advancing in several cutting-edge technologies including AI. But I digress: technology is a macroeconomic factor, and investors should not only look into the US markets but also into China to make better decisions for the future. This current technology boom is not only going to impact media, telecom, retail but all sectors. AI will soon (potentially in the next 10 years) start to take on jobs in numerous industries and it will not discriminate. AI will drive our cars, manage our portfolios, replace our routine jobs and more. It is in our benefit that we track the latest AI innovations and businesses that are leveraging AI advancements. Worldwide governments are making plans to utilize this new technology. But despite all these economic events and the continuing war, we should remain constant in our shares and think for the long term rather than stressing over the current events. AI is just one of these 5 new technological developments. The developments in genome sequencing, robotics, and energy storage will fundamentally change how we live our lives. That’s why we believe the technology sector is the best place to invest in over the long-term.
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Hedge funds don’t have stellar reputations these days as hedge fund failures get magnified in the media. You probably heard more about Tiger Global’s giant losses this year than the mind numbing returns of hedge funds’ top technology picks. Hedge funds have consistently been piling into technology stocks for the past decade. According to Insider Monkey’s calculations, “hedge funds’ top 5 stock picks returned 29.6% in 2021 and beat the market by 3.6 percentage points. From 2014 through the end of 2021, these 5 stocks returned 324.5% and beat the S&P 500 Index by 131 percentage points.” If you have invested in your portfolio into the top 5 hedge fund technology stocks, you would have quadrupled your money in 8 short years. That’s why we believe it is a good idea to go through the top 10 technology stocks among hedge funds.
Here are the 10 best technology stocks to buy according to hedge funds:
10. Alibaba Group Holding Limited (BABA)
Chinese multinational technology corporation Alibaba Group Holding Limited (BABA), better known as Alibaba, specializes in e-commerce, retail, the Internet, and technology. Alibaba Group Holding Limited has a market cap of $245 billion.
Alibaba has made technological advancements in its operations including cloud computing, digital media entertainment, and various business offerings. Alibaba has made initiatives on Tmall Genie, providing IoT-enabled smart home applications such as lights, speakers, and remote controls. Alibaba established Alibaba Cloud in 2009 which is the digital technology and intelligence backbone of the company. Alibaba’s strength is that it has a great business diversity and it benefits from broad economic growth in China.
Alibaba Cloud is contributing in resources and innovations to provide projects that are in line with its value and beliefs. Alibaba is using machine learning to digitize Chinese classics, uses healthcare for the underprivileged, and using AI, machine learning to track and foretell hunger in over 90 countries.
Alibaba is going through a challenging period and lost nearly 75% of its market value since Jack Ma’s famous speech. Despite the slowdown in Chinese growth due to its strict covid policies Alibaba managed to post more than $30 billion in quarterly revenue and $1.75 in earnings. If we annualize this quarterly earnings figure, Alibaba shares trade at 13 times its earnings. We believe this is a cheap price to pay for one of the biggest technology companies that is operating in the world’s soon-to-be biggest economy.
9.Paypal Holdings Inc (PYPL)
PayPal Holdings, Inc. (PYPL) is a technology platform that helps digital payments and commerce experiences for merchants and its customers. This two sided network connects merchants and consumers in 200 markets with 426 million active accounts. PayPal’s 2022 Q2 average shareholder price was $86.75. Billionaire Ken Fisher‘s Fisher Asset Management has the biggest position in PayPal in Insider Monkey’s database. Paypal Holdings Inc has a market cap $111 billion. PayPal shares lost around 70% of their value since peaking last year.
PayPal has been one of the prominent companies in the digital payment revolution for more than 20 years. PayPal Inc uses technology to make financial services and commerce easily protected and PayPal is entitling approximately 430 million consumer and merchants accounts. Paypal Inc is strengthening its digital wallet to become the world’s best, bringing value to its PayPal proposition, strengthening its merchants platform and investing in its key enablers. Here is what Wedgewood Partners said about PayPal recently:
“PayPal Holdings detracted from performance despite the Company generating healthy growth. Revenue grew +8%, but closer to +15% when adjusted for the well-telegraphed roll-off of its eBay relationship. As the Company laps the headwinds of eBay and difficult year ago comparisons, we expect PayPal should drive long-term growth in the mid-teens. Much of this will be driven by further penetration into the Company’s nearly 450 million active users. PayPal’s user base has grown by +50% since the onset of the pandemic so it makes sense for management to focus on driving higher transactions per account and better monetize this historical windfall of users. In our opinion, the shares have discounted away all of PayPal’s pandemic user and revenue gains, so we added to positions during the quarter.”
Several other hedge funds see short-term value in PayPal shares. Activist Elliott invested billions in PayPal and pushing the company to cut costs. That’s why we believe the downside in PayPal is limited in the short-term and it may be a great long-term investment. Harding Loevner Global Equity Fund agrees with us:
“We hold a similar view on other companies that hurt us this quarter: most of the specific blemishes that marred their shares are likely to be transient; the companies’ long-term prospects remain bright while the sell-off has left their shares more attractively priced. PayPal is admittedly at a crossroads with its still-untested strategy of focusing on deepening existing user relationships instead of growing e-commerce commissions off new users; but, at its current price, we are prepared to wait a while longer to gauge if it can succeed.”
8. Salesforce.com Inc (CRM)
Salesforce, Inc. (CRM) is a worldwide business that provides cloud-based software. Salesforce Inc has an emphasis on sales, customer service, marketing automation, analytics, and application development, the company creates customer relationship management software and solutions. Salesforce Inc had an average share price of $176.69 for Q2 2022. Salesforce Inc’s market capitalization is $ 189 billion.
Salesforce Inc, provides a tool for support, sales, and marketing teams worldwide. With the Customer 360 platform, the company connects customer data within all systems, apps and devices to assist companies to increase its revenues, service, and enable them to commerce from anywhere. Company continues to lead new technologies in cloud, mobile, social and Artificial Intelligence(AI). The main drivers for its revenue are subscription and support revenues, and professional services.
Based on FY22 Q4 results revenue was $7.33 Billion, increased 26% annually, FY22 revenue was $26.49 billion, and increased 25% per annum. The operating cash flow was $6.0 Billion and increased 25% annually. The secular growth in CRM’s revenue is probably attracting hedge funds into this compounder.
Salesforce Inc’s investment risks include periodic changes in its sales organization, its ability to deliver its services that are dependent on development and interference of the Internet by third parties. Moreover there are strategic and industry risks. Technology is a highly competitive company, and Salesforce Inc states it should maintain its rapidly evolving technology.
Some ESG goals of the Salesforce include its commitments to advance racial equality and justice and reduce greenhouse gas emissions.
Here’s what Vulcan Value Partners has to say about Salesforce, Inc:
Salesforce.com Inc. is the dominant provider of customer relationship management software and technology. Salesforce has high retention rates, pricing power, high free cash flow, and a competitive moat. The company continues to execute well. Margins decreased slightly during the fourth quarter but continue to be on path for material expansion over the long term. Salesforce is seeing increased spending as employees are returning to the office, and we believe the global pandemic has only improved its prospects.
7. Apple Inc (AAPL)
Apple Inc. (AAPL) is a multinational technology firm with headquarters in Cupertino, California, that focuses on consumer goods, software, and online services. Apple is the largest technology company by revenue: $387.5 billion. Apple Inc. has a market cap of $2.7 trillion.
Apple Inc. (Apple) creates, produces, and sells mobile phones, tablets, personal computers (PCs), portable electronics, and wearable technology. In addition, the business provides networking solutions, accessories, third-party digital content, and software and related services. The market for Apple Inc, is rivalrous, yet the company achieves mind-boggling margins. It is one of the best performing mega-cap technology stocks in this year’s tech rout.
Risk factors of investing in Apple Inc are Global and regional economic conditions that could materially adversely affect the company’s business, results of operations, financial condition and growth and the company may not be able to effectively compete in the highly competitive and technologically changing global markets for its goods and services.
Here is what Wedgewood Partners said about Apple Inc. (NASDAQ:AAPL) in its Q2 2022 investor letter:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit. As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
6. Uber Technologies Inc (UBER)
Uber Technologies, Inc. (UBER) enables customers to reserve a vehicle and driver for transportation that resembles a taxi. Its headquarters are in San Francisco, and as of 2021, it will operate in roughly 72 countries and 10,500 cities. Its services include ride-hailing, food delivery (Uber Eats and Postmates), package delivery, couriers, freight transportation, electric bicycles, and motorized scooters. Uber’s 2022 Q2 average shareholder price was $26.55. Uber Technologies, Inc has a market cap $63 billion.
Uber Inc is using AI to improve user experiences for their products, also uses machine learning such as improving safety, improving ETAs, and recommending food items as new innovations. Uber Inc has global brand recognition, a strong market position, and customer loyalty.
The investment risks for Uber are autonomous vehicles from companies such as Alphabet (GOOGL) and Tesla (TSLA). However, Uber Inc currently brings value to its customers.
Uber Inc has 9 material ESG issues and it is committed to sustainability. Uber Inc is giving importance to civil unrest regarding systemic racism and inequality, and the deeply recessed global economy.
Here is what ClearBridge Large Cap Growth Strategy has to say about Uber Technologies, Inc. in its Q3 2021 investor letter:
“We have also been looking for multiyear secular trends outside of the IT and Internet sectors to help us maintain a portfolio that can perform well in markets with varied sector or factor leadership. In particular, electrification of the global economy and the transition to electric vehicles (EVs) are areas where we continue to add exposure. We are investing in the brains behind EVs through NXP in the control center and Aptiv for safety features. Global rideshare leader Uber will also be a key player in the transition from internal combustion engines to EVs.”
5. VISA INC (V)
American international financial services company Visa Inc. (V) is headquartered in Foster City, California. It enables electronic money transfers all across the world, most frequently using Visa-branded prepaid, debit, and credit cards. Visa Inc’s 2022 Q2 average shareholder price is $206.76 and has a market cap of $445 billion.
Visa Inc had a net revenues of $28 billion over the last 12 months. One of the main revenue drivers for Visa Inc is consumer payments, new payments, and value added services. Visa inc is digitizing its consumer payments. Moreover, the pandemic affected consumer choices and actions. People started to use mobile payments for transactions more. Now people are using technology to make the smallest to biggest transactions. Based on the 2021 Visa Annual Report, tap to pay now is 70 percent of the in-person transactions, beside the United States. Visa is keeping investing in resources that support its growth levers, its network of networks capabilities, and the larger payments ecosystem.
Visa Inc has a P/E ratio of 31. It is one of those stocks that never trade at a cheap multiple The risk factors of investing in Visa Inc, include regulatory risks, Litigation Risks, Technology. Cybersecurity, and Structural & Organizational Risks. Visa can face barriers of reimbursement rates, domestic processing requirements, point-of-sale transaction rules and more by regulation. Moreover, global payment technology is intensive. There are numerous payment providers on the internet that are evolving payments such as fintech and other companies.
Hand touching brain of AI, Symbolic, Machine learning, artificial intelligence of futuristic technology. AI network of brain on business analysis, innovative and business growth development.
Visa Inc’s goals for inclusive, and sustainable economic growth is to empower SMBs through digital enablement, capacity-building and partnerships, expand access to digital payments for the unbanked and underserved. Furthermore, protecting the planetContinue sourcing 100 percent renewable electricity, maintaining LEED or other green-building certification, continuing to improve energy efficiency.
Here is what Polen Global Growth Fund has to say about Visa Inc. (NYSE:V) in its Q1 2022 investor letter:
“We added to both Visa and Mastercard during the final quarters of 2021, based on the belief that both businesses were trading at attractive prices and poised to deliver, double-digit returns over the next three to five years. Cross-border transactions–a highly profitable business segment for both companies–represent roughly 10% of Visa and Mastercard’s volumes and 25% of their gross revenues, so lockdowns have severely impacted this segment due to stifled travel. While it was impossible to know when people would begin traveling again, we accepted this reality with the belief that travel would eventually return. Both companies have commented that as soon as a country or geography reopens, cross-border volumes reignite, amplifying each business’s growth and profitability. We think these near- term headwinds have created an attractive long-term investment opportunity.”
4. Meta Platforms Inc (META)
The American international technological corporation Meta Platforms, Inc. (META) now doing business as Meta (META) and formerly known as Facebook, Inc. is situated in Menlo Park, California. The firm, among other things, is the owner of Facebook, Instagram, and WhatsApp.
Meta Platforms now has a trailing PE ratio of 13 as the stock lost nearly half of its market value recently. Numerous people do not invest in Meta Inc stock because of the risks such as regulatory risk, decline in advertising rates, and traffic growth risks. While people are right to be skeptical about Meta Inc, it is a good technology stock to invest in long term as a lot of the negative risks are already priced in.
Here’s what Giverny Capital has to say in its Q1 2022 letter about Meta Inc:
The rub, however, is that despite the bad earnings news the economics of Meta’s social media businesses remain exceptionally good. In 2021, for every dollar of revenue generated Meta spent 63 cents on expenses and reported 37 cents of pretax profit. That was considered disappointing, even though very few businesses generate 37% profit margins. On top of that, fully one-third of expenses, or 21 cents on the dollar of revenue, is spent on research & development, which is investment in future growth. In Meta’s case, this amounts to about $25 billion a year invested in various new projects, the most important of which is the metaverse.
3. Alphabet Inc (GOOG, GOOGL)
Alphabet Inc. (GOOGL) is an American global technological conglomerate holding company. Company is one of the most valuable companies in the world and is the world’s third largest technology company. The parent of Google has a $1.5 trillion market cap, and owns YouTube, Nest, and Waze.
Alphabet’s key revenues are coming from cost-effective online advertising; cloud-based solutions that provide customers with infrastructure and platform services and collaboration tools; sales of other products and services, such as apps and in-app purchases, digital content products, and hardware; and fees received for subscription-based products such as YouTube Premium and YouTube TV. Company’s mainly expenses are attributed to sales and marketing, general and administrative functions and R&D.
Overall, the technology market is one of the most growing industries in the market and globally, the US IT sector holds a 33% market share. Alphabet Inc is gaining competitive advantage in the industry by buying other companies, gaining new technologies, patents, and improving its products and services. We believe Alphabet Inc is undervalued given its double digit topline growth rate. Current Alphabet Inc share price is $117. We like Alphabet because of its exposure to artificial intelligence and autonomous driving opportunities. Moreover, Alphabet Inc makes investments in data centers, information technology assets and grow its current services and products at a rapid clip. Alphabet Inc reported a 13% revenue growth for the second quarter and has approximately %5 of free cash flow yield.
While a company holds a lot of promise for the future, there are some risks to be careful about before investing. Most of Alphabet’s revenue is coming from advertising. Companies might cut their advertising budgets sharply during recessions. Moreover, there can be regulation problems. Antitrust, data privacy, and Section 230, gives online platforms the freedom to control content while shielding them from accountability for posts made by their users, are among the issues that may negatively affect the company in the future.
Alphabet Inc manages Environmental, Social and Governance relationships well. One of its goals is to make net-zero emission in its operations and value chains by 2030. It also aims to replenish more water than it uses by 2030. Company’s long term prospects are to preserve the environment and help people with technology. According to the ESG reports Google wants to develop AI responsibly and thoughtfully. They are emphasizing the importance of building AI ethically and socially beneficially.
Alphabet Inc is doing well on the growth front and is one of the best companies to invest in as digital transformation carries on. Ensemble Fund describes Google as “one of the most extraordinary businesses of the digital age. Its mission is “to organize the world’s information and make it universally accessible and useful. “When you think about the mass adoption of the Internet, smartphones, social and digital media, and ecommerce among billions of users every day, and the exponential growth of data that has brought, we all know how valuable Google’s role in collecting, organizing, and filtering all that information has become in our daily lives”.
2. Microsoft Inc (MSFT)
Microsoft Corporation (MSFT), also known as Microsoft, is a multinational technology company with headquarters in Redmond, Washington, in the United States. It manufactures computer software, consumer electronics, personal computers, and related services. The Windows range of operating systems, the Microsoft Office package, and the Internet Explorer and Edge web browsers are some of its best-known software offerings. Nevertheless, its stock price went up nearly 1000% over the past decade or so because it transformed itself into a cloud computing company.
Microsoft is focusing on innovating AI and ALT tech innovations. Microsoft makes most of its money from its cloud computing business. Microsoft Cloud revenue was $25 billion in Q2 and it was up 28% year over year. Because of its strong cloud business, the market awarded MSFT with a trailing PE ratio of 29.
Here is what Polen-Capital-Global-Growth-Funds has to say about Microsoft in its Q1 2022 investor letter:
“ Microsoft and Accenture’s businesses are both firing on all cylinders and continue to enjoy an acceleration in their respective fundamentals because of the increase in digitization around the world. Nearly every company today is searching for ways to become more digital, and both Microsoft and Accenture are positioned to provide many of the solutions these companies seek. This inflection in fundamentals was not lost on the market, and each business’s stock performed exceptionally well in 2021”
Baron Opportunity Fund was also bullish on Microsoft Corporation (NASDAQ:MSFT) in its Q1 2022 investor letter:
“Shares of mega-cap software company Microsoft Corporation pulled back with the broader software sector. The company posted another solid quarter, highlighted by total revenues increasing 20% and Microsoft Cloud revenues, now 45% of total revenues, growing 32%. These results were driven, in large part, by strong demand for large Azure contracts. We believe Microsoft can compound revenue in the low double digits for the next three years, underpinned by its expansion in its total addressable market and market share gains.”
1. Amazon.com Inc. (AMZN)
Amazon Inc (AMZN) is a technology company that immerses itself in e-commerce, cloud computing, digital streaming, and artificial intelligence. Amazon Inc is one of the biggest American Technology companies such as Alphabet, Apple, Meta Platforms and Microsoft. Company’s current share price is $140, up more than 35% over the past couple of months. Amazon, Inc has a market capitalization of $1.4 trillion.
Amazon produces books, DVDs, music CDs, videotapes, and software), apparel, baby products and more. Amazon also focuses on e-commerce, cloud computing, digital streaming, and artificial intelligence. Amazon has made Prime, Prime Air, Alexa, Kindle, Cloud Computing. Key drivers of Amazon are subscriber growth, its fulfillment strategy, and cloud revenue. It is really a cloud computing company but most investors see it mostly as an online retailer.
Amazon is indeed the largest internet retailer and e-commerce giant, but it derives the bulk of its value from cloud computing services. A couple of months ago its market value declined to $1 trillion. Insider Monkey valued the value of Amazon’s AWS at $1 trillion which meant investors could have bought the rest of the company (i.e. the biggest online retailer in the world for free). That’s probably why it is the number one stock among hedge funds (see 30 most popular hedge fund stocks).
Amazon Inc, also has family support programs, free mental resources, and a Career Choice Program. Amazon, Inc is committed to be net-zero carbon by 2040. Amazon Inc is the biggest corporate buyer of sustainable energy. Amazon Inc, currently has 274 projects.
Here’s what Alphyn Capital Management has to say in its Q1 2022 report for Amazon Inc:
“We doubled our position in Amazon after the price declined due to market worries regarding cost/wage inflation and the need for increased capital expenditure. In contrast to many “covid beneficiaries,” Amazon’s sales are proving resilient, as the convenience of online shopping for everyday items has led to habit formation. To accommodate the increase in business, Amazon increased its operating square footage by 60% and 40% in 2020 and 2021. It plans to grow a further 25% in 2022.6 Future revenues will benefit from this increase in capacity, and margins should expand as capital expenditure moderates.”
You can also take a look at This Analyst Is Bearish on These 15 Retail Stocks Amid “Soft Landing” Expectations and 10 Best Stocks For Inflation According to Redditors.
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This article is originally published at Insider Monkey.
