For investors seeking tech stocks to buy, the so-called “FAANG stocks” have dominated the news since 2017. The five companies, Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX) and Alphabet (NASDAQ:GOOG NASDAQ:GOOGL) are now worth $5.7 trillion, or almost 20% of the S&P 500 index. Their massive size, however, makes future expansion far more difficult.
Investors looking for growth in 2021 should instead consider a different set of tech stocks to buy: the “SUMBA” stocks.
The SUMBA companies have equally strong franchises as the FAANG companies. But many are also cheaper, faster-growing and have a higher potential of super-normal returns. All of this makes them more appealing tech stocks to buy now.
While FAANG stocks may struggle through 2021, here are the five tech stocks you should consider instead:
- Shopify (NYSE:SHOP)
- Uber (NYSE:UBER)
- Microsoft (NASDAQ:MSFT)
- Alibaba (NYSE:BABA)
- Advanced Micro Devices (NASDAQ:AMD)
Let’s take a look at what makes the SUMBA companies the best tech stocks to buy for long-term gains.
Best Tech Stocks to Buy: Shopify (SHOP)
The Ottowa-based e-commerce company has had an amazing year thanks to the rise of online shopping. Shares are up 125% for 2020 and show little signs of slowing.
When the company first started in 2006, it posed a question: Would merchants want to outsource their e-commerce websites? It wasn’t clear at the time. But Shopify looked to find out.
The gamble has paid off. Today, Shopify runs e-commerce websites for thousands of companies, from national companies like Kraft Heinz (NASDAQ:KHC) to Lindt Chocolates (OTCMKTS:LDSVF), to mom-and-pop stores. And there are two reasons for their massive success.
Firstly, Shopify is cheap and fast. For just $29 per month, a merchant can create and host an e-commerce website on Shopify within minutes. Credit card processing fees come to only 2.9% + 30 cents. That’s far lower than Amazon’s 6-20% merchant take rate. Secondly, Shopify allows companies to “own” their stores. Users visiting a Shopify site won’t get shown competitor products, unlike on Amazon or eBay.
These reasons have fueled Shopify’s amazing growth. Analysts expect revenues to jump 65% in 2020, and another 100% by 2022. Move aside, Amazon. Small merchants are fighting back with the help of Shopify’s technology. All of these factors add up to make it easily one of the best tech stocks to buy today.
Uber (UBER)
Beaten-down Uber is another tech stock to buy for 2021 as the world begins to fight back against the novel coronavirus pandemic. Here’s why Uber looks set to bounce back next year.
1. The coronavirus lockdowns won’t last forever. Although quarantines can often seem to last an eternity, experts believe that a vaccine will eventually become widely available sometime in 2021. And even now, people are already starting to return to ride-hailing. When France reopened all schools in mid-June, Uber saw bookings recover to 70% of pre-pandemic levels.
2. Uber has quietly expanded in food delivery. In July, Uber snapped up food delivery company Postmates in a $2.65 billion all-stock transaction to become the second-largest U.S. food delivery company. Revenues at Uber Eats are up 122% for the year.
3. Uber’s business model remains intact. The company has maintained its roster of drivers by switching people to food delivery. Users returning to Uber will still find plenty of available drivers.
The company has come a long way since its sexual harassment scandals involving founder Travis Kalanick. Its new CEO, Dara Khosrowshahi, has moved to clean up Uber’s culture and consolidate the sprawling industry.
Analysts expect Uber’s revenues to rebound to $18 billion in 2021 and grow another 28% in 2022. So as workers return to the office, say “goodbye” to Netflix. It’s Uber’s time to shine again.
Microsoft (MSFT)
Today’s Microsoft would look almost unrecognizable to founders Bill Gates and Paul Allen. That’s because, under CEO Satya Nadella, the tech behemoth has quietly turned into a diverse portfolio of fast-growing tech services.
- Commercial Cloud: Microsoft Azure, Office 365 Commercial
- Cloud Services: Dynamics 365 (CRM and ERP Services)
- Office Consumer: Office 365, Skype, Outlook.com and OneDrive
- LinkedIn: Talent Solutions, Marketing Solutions and Premium Subscriptions
In August, Microsoft began talks to acquire video app Tik Tok from its Chinese owner ByteDance. The move should come as no surprise to Microsoft watchers; the tech giant has long tried to enter the U.S. living room with products like the Xbox, Groove Music, Mixer Streaming and Skype.
Although the TikTok deal has since fallen through, Microsoft is still one of the best tech stocks to buy right now.
Under CEO Nadella’s leadership, Microsoft has successfully incorporated diverse acquisitions into its product lineup. From LinkedIn to Github, the company has recently shown an uncanny ability to keep small companies growing. So, if the Tik Tok acquisition goes through, move over Facebook. You might have a new competitor in town.
Alibaba (BABA)
Investors looking to participate in 2020’s largest IPO, Ant Financial, can do so through Chinese e-commerce giant Alibaba. That’s because Alibaba owns 33% of the massive mobile payments company.
In 2019, over 1.2 billion people used Alipay, more than three times as many as PayPal (NASDAQ:PYPL). Alibaba’s stake in the company could be worth $70 billion or more.
But that’s not all.
E-Commerce. Investors in Alibaba will also own a massive e-commerce business. The Chinese e-commerce company dominates the market with a 56% market share, far higher than Amazon’s 38% share in the U.S.
Cloud Computing. Alibaba’s cloud computing segment grew almost 60% in Q2 and now generates a $7.2 billion annual run rate.
Logistics. Alibaba started Cainiao Logistics Services in 2013 to help with shipping. Logistics now generates 10% of Alibaba’s revenues and grows even faster than its core e-commerce business.
The company has also experimented in digital media (Alibaba pictures), video (Tudou), food delivery and mobile gaming. Upstarts like Meituan (OTCMKTS:MPNGF) have forced the Chinese tech giant to innovate continually, and Alibaba has continued to rise to the challenge.
Stand aside, Google. Another company looks set to dominate the Chinese web.
Advanced Micro Devices (AMD)
AMD has leapfrogged Intel (NASDAQ:INTC) and other chipmakers to round out the “SUMBA” tech stocks to buy. Shares are already up 160% this year and are poised to rocket higher in 2021.
The company caught a massive break in 2019. That year, AMD released the Radeon VII “Vega,” the first 7nm graphics card (GPUs) available to consumers. In 2020, the company followed up in 2020 with its 7nm Ryzen CPUs. Not only were AMD’s 7nm chips faster than Intel’s older 12nm versions. They also consumed less power, making them ideal for mobile phones and laptops.
These changes have more than doubled AMD’s market share. Today, the company holds 20% of the CPU market and 32% of GPUs.
Intel has struggled to keep up. In July, the legacy chipmaker announced a two-year delay on its 7nm chips due to manufacturing defect issues. Chief engineer Venkata “Murthy” Renduchintala resigned not long after. Intel’s manufacturing woes leave AMD with the lucrative PC and server market for the taking. Analysts expect revenues to shoot up 67% between 2020-2023 and profits to more than double.
Without intense competition from Intel, AMD’s lead looks set to grow in 2021.
Conclusion: Tech Stocks to Buy for 2021
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Because remember: FAANG companies were just the beginning of the tech revolution. There are plenty of younger, nimbler companies that promise investors even better returns.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing. On the date of publication, Thomas Yeung did not hold a position (either directly or indirectly) in any of the securities or cryptocurrencies mentioned in this article.
