20 Red-Hot Tech Stocks to Consider

tech stocks - 20 Red-Hot Tech Stocks to Consider

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There is no hiding it. When it comes to the stock market, tech stocks have been the big winners.

Year-to-date, the NASDAQ-100, considered a benchmark for tech stocks, is up nearly 10%. The S&P 500 is barely positive year-to-date, while the Dow Jones is negative on the year.

This isn’t a new phenomena. Over the past decade, the Nasdaq has rallied nearly 280%, while the S&P 500 and Dow Jones have each rallied about 110%. That essentially means that over the past 10 years, tech stocks have outperformed the broader market by nearly three to one.

This rally in tech stocks is far from over.

Valuations aren’t absurd, with technology stocks trading around 19-times forward earnings. Growth is robust, with tech stocks expected to grow revenues by over 10% and earnings by nearly 20% this year. Technicals look good, with a majority of tech stocks still in a very strong uptrend. And the growth narratives are only getting stronger, as more and more dollars flow into industries like digital advertising, cloud services, AI, automation, e-commerce and more.

Consequently, tech stocks should continue to lead this market higher.

With that in mind, here’s a list of 20 red-hot tech stocks that have been the biggest winners thus far in 2018.

Red-Hot Tech Stocks: Twitter (TWTR)

Red-Hot Tech Stocks: Twitter Inc (TWTR)
Source: Shutterstock
YTD Gain: +84%

How It Got Here: The big run in Twitter (NYSE:TWTR) has everything do with a turnaround in the advertising business, which has in turn fueled robust margin expansion. The advertising business, which had been in decline for most of 2017, inflected into positive growth territory in Q4 2017. In Q1 2018, that advertising revenue growth burst into 20%-plus territory. Big revenue growth led to robust margin expansion, and now, Twitter is a consistently profitable company.

Where It’s Going Next: The turnaround in the ad biz is impressive. The margin expansion narrative is equally impressive. But user growth remains stuck in neutral, and without robust user growth, Twitter stock does not deserve its present 60-times forward multiple. As such, any operational hiccups could cause significant weakness in shares.

Red-Hot Tech Stocks: Netflix (NFLX)

Red-Hot Tech Stocks 2: Netflix, Inc. (NFLX)

YTD Gain: +103%

How It Got Here: The big run in Netflix (NASDAQ:NFLX) has been powered by a robust original content portfolio, which has increased the platform’s value prop and led to super-charged subscriber growth. This has been the narrative for the past two years now, but user growth isn’t slowing at all despite increasing scale. Moreover, over the past several quarters, margins have started to roar higher as explosive subscriber growth has led to materially higher revenue per content asset, while the costs for those content assets have remained fixed. The net result is big revenue growth and big earnings growth.

Where It’s Going Next: Valuation is a concern for Netflix stock. But that has been the case for a while now, and the stock keeps heading higher because growth continues to impress. Considering the huge growth levers the company has through subscriber growth, price hikes and a potential plunge into the video game market, Netflix stock should head higher because growth will continue to impress.

Red-Hot Tech Stocks: Turtle Beach (HEAR)

Red-Hot Tech Stocks 3: Turtle Beach Corp (HEAR)
Source: Shutterstock

YTD Gain: +1,020%

How It Got Here: You read that right. Little known Turtle Beach (NASDAQ:HEAR) is up more than 1,000% so far in 2018. The catalyst for the big-run has been a surge in demand for the company’s gaming headsets, which have become a must-have product as battle royale games like Fortnite have become the latest trend in the video game market.

Where It’s Going Next: It is tough to see a stock that is already up 1,000% year-to-date heading higher, but HEAR could do it. The stock isn’t that expensive at just 21-times forward earnings, and revenue growth was nearly 200% last quarter. Plus, the company has broad exposure to what will soon be a massive e-sports market, implying that today’s golden era may actually be more than just a fad. Overall, this stock should head higher.

Red-Hot Tech Stocks: Pandora Media (P)

Red-Hot Tech Stocks: Pandora Media (P)
Source: Shutterstock
YTD Gain: +75%

How It Got Here: Spotify (NYSE:SPOT) has been getting a lot of love from Wall Street recently, but the big streaming music winner in 2018 has been Pandora (NYSE:P). The stock’s 75% year-to-date rally has been powered by accelerating momentum in the company’s subscription business, as well as optimism surrounding additional revenue audio advertising opportunities through AdsWizz, which Pandora acquired earlier this year.

Where It’s Going Next: I’m inclined to say that Pandora stock has already had its day in the sun. The company has yet to show a profit, and isn’t expected to show a profit anytime soon. Yet, the stock trades at over 1.3-times trailing sales, which seems rather rich for an unprofitable company. Momentum could carry this stock higher, because the audio advertising opportunity is promising, but fundamentals will prevent another 50%-plus rally from happening over the next six months.

Red-Hot Tech Stocks: Advanced Micro Devices (AMD)

Red-Hot Tech Stocks 5: Advanced Micro Devices, Inc. (AMD)
Source: Shutterstock

YTD Gain: +46%

How It Got Here: After a rough 2017, chipmaker Advanced Micro Devices (NASDAQ:AMD) has made a big comeback in 2018. In 2017, the AMD narrative was dominated by concerns regarding market share gains in high-end computing markets like data-centers. In 2018, however, the narrative has shifted from concern to optimism as AMD’s numbers have pointed to robust growth in high-end computing markets.

Where It’s Going Next: AMD is set to take server market share away from Intel (NASDAQ:INTC) in the back-half of the year due to the lack of a new product from Intel. That should lead to impressive numbers for AMD, and those numbers should power this stock higher to the high-teens range by the end of the year.

Red-Hot Tech Stocks: Axon Enterprise (AAXN)

Red-Hot Tech Stocks 6: Axon Enterprise (AAXN)
Source: Axon

YTD Gain: +137%

How It Got Here: The company formerly known as Taser International, Axon Enterprise (NASDAQ:AAXN) has made a huge pivot from selling tasers to selling body cameras and accompanying cloud-hosted data storage solutions. To accelerate this pivot, Axon gave away a free trial to every police officer in 2017. That caused Axon’s numbers to look ugly. But in 2018, all those free trials have converted into paying customers, and now, Axon’s stock is soaring alongside dramatically improved numbers.

Where It’s Going Next: The secular growth narrative surrounding this company is very promising. Law enforcement agencies need to modernize, digitize and have greater accountability. Axon provides solutions which check all three of those boxes. But at present levels, AAXN stock seems fully priced for all that upside, and more. As such, much like Twitter, this stock seems susceptible to any operational hiccups.

Red-Hot Tech Stocks: Amazon (AMZN)

Red-Hot Tech Stocks: Amazon (AMZN)
Source: Shutterstock

YTD Gain: +45%

How It Got Here: Of course, one of the hottest tech stocks of 2018 is Amazon (NASDAQ:AMZN). Not much has changed about the secular growth narrative surrounding this company. And that is a good thing. Growth in the e-commerce biz remains robust. Same with the cloud biz. The offline retail business is oozing with potential. As is the smart home business. Plus, Amazon just acquired pharmacy licenses in all 50 states through its acquisition of PillPack.

Where It’s Going Next: This one will only head higher. Bears can keep pounding on the table about valuation, but the growth opportunity is there for Amazon to adequately grow into its valuation so long as management executes. Thus far, management has executed almost perfectly, and therefore, the most likely outcome for Amazon stock is to head higher through strong execution in huge growth markets.

Red-Hot Tech Stocks: Palo Alto Networks (PANW)

Red-Hot Tech Stocks: Palo Alto Networks Inc (PANW)
Source: Shutterstock

YTD Gain: +40%

How It Got Here: Cybersecurity has quickly become a must-have in today’s increasingly digitally connected world. As such, demand for cybersecurity solutions has skyrocketed, and the king of this space, Palo Alto Networks (NYSE:PANW), has naturally been a huge winner.

Where It’s Going Next: Growing demand for robust cybersecurity solutions is a secular growth narrative that isn’t going anywhere any time soon. In fact, demand for the stuff PANW offers will likely only grow over the next several years as more data and operations migrate to the digital channel. That means PANW’s presently big growth rates are here to stay, and that makes the stock look reasonably valued at just over 50-times forward earnings for what is easily a 25%-plus earnings growth company over the next several years.

Red-Hot Tech Stocks: Adobe (ADBE)

Red-Hot Tech Stocks: Adobe Systems (ADBE)
Source: Shutterstock

YTD Gain: +37%

How It Got Here: There are three big reasons why Adobe (NASDAQ:ADBE) has been a huge winner as of late. First, the company has virtually no adequate competition, and that means Adobe is a must-have for any and every creative professional. Second, Adobe has successfully transitioned its business model to a higher-margin, more-predictable cloud subscription model. Third, the valuation on the stock has remained reasonable despite huge growth.

Where It’s Going Next: Above $250, Adobe stock was maxed out. But the stock has since normalized, and will likely resume its upward trend through strong user growth, consistent price hikes, robust revenue growth, and even more robust profit growth.

Red-Hot Tech Stocks: Tripadvisor (TRIP)

Red-Hot Tech Stocks: Tripadvisor (TRIP)
Source: Shutterstock

YTD Gain: +63%

How It Got Here: Much like other stocks on this list, Tripadvisor (NASDAQ:TRIP) is a 2018 bounce-back story. Competitive risks from Airbnb, Amazon and others killed TRIP stock in 2014, 2015, 2016 and 2017. But 2018 has started off with a different narrative, as the company has released strong earnings reports back-to-back, each of which points to strengthening go-forward fundamentals in the travel sector.

Where It’s Going Next: Growth is coming back into the picture, but the valuation is pretty rich at 41-times forward earnings (versus a five-year average forward multiple of 30 and against the backdrop of sub-20% earnings growth). Consequently, while the fundamentals are improving for TRIP stock, these improvements seem largely priced in after the stock’s year-to-date rally. Gains through the rest of the year will be tough to come by.

Red-Hot Tech Stocks: NetApp (NTAP)

Red-Hot Tech Stocks: NetApp (NTAP)
Source: Shutterstock

YTD Gain: +39%

How It Got Here: NetApp (NASDAQ:NTAP) has been a big winner over the past several years because the company is thriving in the overlap of the cloud and data revolutions. Revenue growth has come back into the picture over the past several quarters, and the stock has consequently made a big move higher.

Where It’s Going Next: This stock will head higher. NTAP is a rare combination of attractive valuation (sub-20 forward multiple), broad growth exposure (this is a cloud company) and big earnings growth (15%-plus projected over next five years). As a result of this combination, NTAP stock should head meaningfully higher in the foreseeable future.

Red-Hot Tech Stocks: Electronic Arts (EA)

Red-Hot Tech Stocks: Electronic Arts (EA)
Source: Shutterstock

YTD Gain: +33%

How It Got Here: The whole Netflix of video games label has caught on, and investors are buying up Electronic Arts (NASDAQ:EA) stock for its massive growth potential through e-sports and live video game streaming. Meanwhile, the company has shrugged off micro-transaction concerns around Christmas 2017, and it has proceeded to report very good numbers thus far in 2018.

Where It’s Going Next: Valuation and the sustainability of presently super-charged results are growing concerns for this stock. But if the company does successfully capitalize on what projects to be a massive opportunity in e-sports, then the Netflix of video games label isn’t far off from reality. In that scenario, EA stock heads materially higher.

Red-Hot Tech Stocks: Trade Desk (TTD)

Red-Hot Tech Stocks: Trade Desk (TTD)

YTD Gain: +100%

How It Got Here: Shares of Trade Desk (NASDAQ:TTD) have doubled in 2018 because the company has continued to report huge growth numbers, which point to longevity in the secular growth programmatic advertising market that TTD is fully immersed in.

Where It’s Going Next: The stock is expensive at over 45-times forward earnings. But growth is big, with revenue growth of 61% last quarter. And the growth narrative is promising as the more ad dollars flow into the digital advertising channel, the more advertisers will look toward companies like Trade Desk to optimize digital ad spend. Therefore, the outlook for this stock going forward remains promising.

Red-Hot Tech Stocks: 3D Systems Corporation (DDD)

YTD Gain: +58%

How It Got Here: 3D printing is bouncing back, but not in the way that you’d expect. 3D Systems Corporation (NYSE:DDD) has had an explosive 2018 because there are some exciting things happening on the industrial 3D printing side. Big industries like aerospace and healthcare have found some cool ways to use 3D printing to improve supply chain productivity and create medical devices, and those industries are creating healthier demand for 3D printing systems.

Where It’s Going Next: Growth at DDD is still wildly mediocre, at just 6% last quarter. That really doesn’t scream turnaround, nor does it warrant a huge valuation. But DDD stock trades at 60-times next year’s consensus earnings, which is a huge multiple for 6% revenue growth. Unless demand in the 3D printing space picks up miraculously over the next several quarters, DDD stock will struggle.

Red-Hot Tech Stocks: Intelsat (I)

Red-Hot Tech Stocks: Intelsat SA (I)
Source: Shutterstock

YTD Gain: +392%

How It Got Here: The huge jump in Instelsat (NYSE:I) this year has been predicated largely on the potential commercialization of C-band satellite frequencies. Discussions have occurred this year between multiple companies and the FCC regarding the sharing of C-band spectrum for 5G monetization purposes. The FCC has made constructive steps toward allowing this, and it looks like a positive decision will be delivered for Intelsat by this summer.

Where It’s Going Next: This is a huge opportunity for Intelsat. Granted, at this point in time, investing in Intelsat feels more like speculation than anything else. Further upside hinges entirely on a positive FCC decision and the ability to monetize C-band. But it looks quite likely that the FCC will deliver a positive decision, and that the company will proceed with monetizing C-band in the near future. Optimism regarding the potential of this market should keep the stock up, but investors should be aware of the immense downside in the event of a negative FCC decision.

Red-Hot Tech Stocks: iQIYI, Inc (IQ)

Red-Hot Tech Stocks: iQIYI, Inc (IQ)
Source: Shutterstock

YTD Gain: +105%

How It Got Here: Say hello to the Netflix of China. A freshly public Chinese internet company, iQIYI, Inc (NASDAQ:IQ) has made quite the debut on Wall Street, rallying more than 100% in just over a month. The catalyst? Widespread comparisons between it and Netflix, as IQ is the leading video streaming platform in the huge Chinese streaming market, which Netflix currently has zero presence in.

Where It’s Going Next: This is a multi-bagger in the making, assuming that Chinese regulations continue to keep Netflix out of China. The Chinese streaming market is huge, and IQ is presently the king of that market. Thus, IQ projects to have Netflix-like growth over the next several years, and that should propel the stock significantly higher in a multi-year window.

Red-Hot Tech Stocks: HUYA Inc (HUYA)

Red-Hot Tech Stocks 17: HUYA Inc (HUYA)
Source: Shutterstock

YTD Gain: +102%

How It Got Here: If IQ is the Netflix of China, then Huya Inc (NYSE:HUYA) is the Twitch of China. Just as IQ stock has rallied more than 100% in just over a month on Netflix comparisons, HUYA stock has also rallied more than 100% over the past month on Twitch comparisons.

Where It’s Going Next: Like IQ, HUYA is a potential multi-bagger in the making. China is home to the world’s largest video game market, mostly due to the sheer number of players (over 600 million active video gamers, which is more than the entire U.S. population). Owing to this massive size, HUYA has huge growth potential, and the stock should be a big winner over the next several years.

Red-Hot Tech Stocks: Momo Inc (MOMO)

Red-Hot Tech Stocks: Momo Inc (MOMO)
Source: Shutterstock

YTD Gain: +83%

How It Got Here: The other red-hot Chinese internet stock in 2018 has been Momo Inc (NASDAQ:MOMO). Growth has come roaring back into the picture for MOMO, alongside robust user growth, in 2018. The stock has brushed off Chinese regulatory concerns, and investors are now focused on big growth in the live-streaming category.

Where It’s Going Next: This stock is a winner. Every other hyper-growth Chinese internet stock is expensive. But MOMO stock is the opposite of expensive. It trades at just 18-times forward earnings, while revenues rose by more than 60% last quarter. That is a rather absurd disconnect, and it implies healthy gains in the future for MOMO stock.

Red-Hot Tech Stocks: Twilio (TWLO)

Red-Hot Tech Stocks 19: Twilio Inc (TWLO)

YTD Gain: +135%

How It Got Here: Uber killed Twilio (NYSE:TWLO) when they announced that they would be in-sourcing cloud app communication services a while back. Investors freaked that other big tech firms would follow suit, and bailed on TWLO stock. But the stock has come roaring back in 2018 as other big tech firms haven’t done that, and growth after Uber has remained robust.

Where It’s Going Next: Just because other big tech firms haven’t followed in Uber’s footsteps yet, doesn’t mean that the risk is completely off the table. Indeed, I still think it is likely that big tech firms do follow in Uber’s footsteps, and Twilio does have a customer dependence problem with a few customers carrying the load. At present levels, TWLO stock isn’t priced appropriately considering this risk, and as such, the stock looks risky here and now.

Red-Hot Tech Stocks: Salesforce (CRM)

Red-Hot Tech Stocks: Salesforce (CRM)
Source: Shutterstock

YTD Gain: +32%

How It Got Here: Cloud giant Salesforce (NYSE:CRM) has continued to report numbers that simply blow estimates out of the water and wow investors and analysts alike. Thanks to the company’s broad exposure to multiple secular growth markets, strong numbers have led to strong price performance in CRM stock.

Where It’s Going Next: This stock is a long-term winner. The company dominates in the overlap of two secular growth industries (cloud and data). Growth is hardly slowing. Margins are healthy. And the valuation, while big, isn’t unreasonable if you look out five-plus years.

As of this writing, Luke Lango was long HEAR, AMD, INTC, AMZN, PANW, ADBE, NTAP, EA, IQ, HUYA, and MOMO. 

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