Tech giants Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) comprise 23% of all U.S. corporate holdings outside the financial sector, according to rating agency Moody’s.
Then you have the buzz around the FANG stocks — Facebook Inc (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Google. It makes you wonder whether there is any point in actually looking down the list for other companies when these masters of the tech universe are such solid picks.
But surprises like Amazon’s recent fourth-quarter numbers and subsequent selloff, may extinguish some of that wonder. When the big ones fall — and expectations are very high — they fall hard. The trends that these Big Tech firms dominate are populated with smaller tech firms that support their growth. And these firms have much more growth potential because they are focused producers and have a much faster growth track. The challenge is, finding the right ones in the right sectors.
These seven tech stocks with explosive growth potential are my effort to deliver these smaller stocks with big ambitions.
Tech Stocks to Buy: InterDigital (IDCC)
InterDigital, Inc. (NASDAQ:IDCC) is one of the most influential stocks in the burgeoning Internet of Things (IoT) sector. Since the sector is in its relative infancy, its stature isn’t global, but it is at the heart of “The Next Big Thing” in tech.
IoT basically is about connecting devices and objects to one another. It means that if you get a flat tire your car can call a tow truck and get you an appointment in the shop to get it replaced before you can pull over. It means you can manage everything from lights, to locks, to heating and cooling your house remotely.
By 2020, the IoT market is expected to be a $1.3 trillion industry, according to an International Data Corp (IDC) report. That means a 15.6% compounded annual growth rate (CAGR) between 2015 and 2020.
IDCC is one of the key companies that makes the equipment to manage and facilitate the connectivity of devices to one another. Its potential growth is already evident in its third-quarter numbers — revenue more than doubled for the quarter versus the year-ago quarter, primarily on a licensing deal.
Tech Stocks to Buy: Nvidia (NVDA)
Nvidia Corporation (NASDAQ:NVDA) is the leading light in the data visualization sector. In the early days, NVDA simply made high-end computer graphics cards that were very popular with gamers and big research labs. But it wasn’t long until demand started cropping up in a number of industries.
Big Data uses data visualization to allow people to see trends and patterns in the massive amount of numbers that are crunched. Self-driving vehicles (and next gen human piloted vehicles as well) need incredibly fast and accurate information processed to function safely.
And yes, even gaming has reached a new level. With virtual reality and augmented reality set to become the industry standard, high quality, fast processing and rendering is crucial. And NVDA is there to meet the demand on all counts.
The stock is on a tear for the past year, but given the fact that the more tech touches our lives in new and different ways, it is one more opportunity for NVDA. And that doesn’t even take into account the massive amount potential in all the markets it’s already a key player in.
Tech Stocks to Buy: Finisar (FNSR)
Finisar Corporation (NASDAQ:FNSR) is all about optics. And I don’t mean that in a figurative way.
It produces optical subsystems for many major industries. The thing is, this is one of those “behind the scenes” companies that you don’t really know about unless you buy FNSR products for your data center, storage, wireless, cable, military or industrial business. For example, in wireless communications, the constant demand for more bandwidth keeps upping the demands on telecoms to keep upgrading. We’re now at 4G LTE, but 5G is just around the corner. And 6G is already in the works.
The reality is, it isn’t just an equipment and software upgrade in the telecom networks. It takes getting faster speeds to the distribution points. For the next generation services, copper wires have to be replaced with fiber optic cables. And FNSR is at the core of that transition.
FNSR is at least 50% bigger than most of its rivals, so it has a leg up on them when firms are looking for big build outs that hold quality and reliability as top priorities.
Tech Stocks to Buy: Coherent (COHR)
Coherent, Inc. (NASDAQ:COHR) is one of those old school tech companies that started in someone’s garage. Actually, it started in the founder’s laundry room to be exact; between the washer and dryer, using a piece of rain gutter as a key component.
What were they building? The first commercially available CO2 laser, of course.
That was 1966. Now, COHR sports a market cap of nearly $4 billion, with about $800 billion in annual sales. And it has stuck to what got it here – lasers and photonics. Its lasers are doing everything from making OLED displays to materials processing to laser eye surgery equipment.
Earnings have been growing for the past five years. And since it’s been around for decades, COHR knows how to survive in the tech space. It’s not looking to cash out overnight or over-leverage itself trying to diversify or grow its empire.
That being said, COHR is up over 100%-plus in the past 12 months and is trading near its 52-week highs. This shouldn’t be an issue moving forward because the opportunities are continuing to expand for COHR products in new and existing industries.
Tech Stocks to Buy: Weibo (WB)
Weibo Corp (ADR) (NASDAQ:WB) is often called the Twitter Inc (NYSE:TWTR) of China. That is, if Twitter were actually a wildly successful and profitable company with a rapidly expanding subscriber base.
Founded in 2010, WB caught the eye of the “Amazon of China,” Alibaba Group Holding Ltd (NYSE:BABA) in 2013, and BABA bought about 20% of WB and the bumped it up to 30%.
Unlike its American counterpart, WB has been growing like kudzu in the Chinese market and it has been growing its marketing and advertising business substantially. For example, its Q3 numbers released in November reported a 42% increase in net revenue for the quarter compared to the same quarter a year ago. Net income was up 122% over the same time period.
You can understand why comparing it to Twitter has only a passing resemblance. WB is more like Facebook when it comes to building a business. Notice how similar the ticker symbols are; that’s not a coincidence.
At this point, WB needs no help from BABA, and it’s unlikely that WB’s parent company Sina Corp (NASDAQ:SINA) would be interested in parting ways with Weibo.
Tech Stocks to Buy: Science Applications (SAIC)
Science Applications International Corp (NASDAQ:SAIC) has one of those names that is usually a classic cover for something much bigger than it sounds, with clients who are not interested in being known. In a 2007 article on SAIC in Vanity Fair, it was dubbed “the largest government contractor you have never heard of.” SAIC has been awarded more government contracts than any company in history.
While SAIC was founded by a physicist in La Jolla, California and calls its San Diego office its headquarters, this is one of the original “Beltway Bandits,” a name for the defense and intelligence contractors that began to spring up in the DC area during the late 1970s. It specializes in filling in the space between humans and technology.
SAIC went public in September 2013, and has been on a growth path ever since. It has gained momentum in the past year — it’s up 102% in the past 12 months — largely because investors were betting that whoever was elected president in November would start to spend on the military and intelligence communities.
President Trump’s most recent statements prioritizing military spending, even at the sake of running a budget deficit, was a very bullish sign.
Tech Stocks to Buy: Logitech (LOGI)
Logitech International SA (USA) (NASDAQ:LOGI) is one of those companies that hides in plain sight because what it makes is so ubiquitous. LOGI started in Switzerland in 1981, making mice for computers. Since then, it has expanded its product line to a wide range of consumer computer products, from keyboards and gaming to smart houses and home entertainment.
Through its focused approach to the growing marketplace, LOGI products are now available in more than 100 countries and Logitech stock sports a $5 billion market cap. LOGI’s strength is in its ability to recognize new trends. It then looks to innovate its core products to serve the new trend. And it has managed to do that for decades.
In late January it reported Q3 FY2017 earnings and they didn’t disappoint. Revenue for the quarter was up 7%, operating income was up 34% and retail sales were up a record 13%.
What’s more, LOGI guided higher for all of FY2017, expecting 12% to 13% sales growth for the year, which means Q4 should be very strong. The stock is up 43% in the past six months. No surprise there.