The tech sphere was among the worst hit last year for obvious reasons. The sector, known for having inflated valuations and low earnings, led to tech stocks cooling off. However, tech stocks have been building a nice head of steam of late, despite posting mixed fourth-quarter earnings. Therefore, it might be an ideal time to invest in the best tech stocks to buy.
Tech stocks have dominated the stock market over the years. However, outperforming the broader market by roughly 8.6% on average each year for the past eight years, the trend reversed dramatically. Nevertheless, tech stocks recently had their best Jan. in decades, gaining close to 11%. Reduced earnings expectations and a more dovish approach by the Federal Reserve could lead tech stocks higher this year. As you read through the article, you’ll find stocks trading below their 52-week highs. That should provide an attractive entry point for those looking for outsized gains in the future.
Best Tech Stocks To Buy: Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) never ceases to amaze with its ability to tap into the latest tech trends and significantly expand its growth runway. It’s been in the news for its multi-billion dollar investment in OpenAI, the popular research lab behind the viral chatbot ChatGPT.
Microsoft has wasted no time making significant strides in its AI efforts by integrating ChatGPT-like capabilities into its popular software suite and launching an AI-powered version of its Bing search engine. Moreover, ChatGPT has exclusively chosen Microsoft’s Azure platform as its cloud computing provider. The killer combo should result in massive top and bottom-line gains for the business as it looks to become an AI behemoth.
Strip AI from the mix, and Microsoft still has an incredibly robust business that will continue to generate double-digit top and bottom-line gains for the foreseeable future. Also, MSFT stock trades close to 20% lower than its 52-week high price of $315.95, which points to solid upside potential.
Best Tech Stocks to Buy: Apple (AAPL)
Apple (NASDAQ:AAPL) is the world’s most valuable tech company, with a market capitalization of $2.2 trillion. Its timeless offerings are not only market beaters but are integrated within a sticky ecosystem, providing users with an unparalleled experience. Each component of its tightly integrated ecosystem of products and services works seamlessly together to create a cohesive experience for its massive user base worldwide.
Apple’s operating performance has been remarkable over the years, generating close to 12% sales growth over the past five years. Recent results, though, have been marred by foreign exchange pressures and other macro headwinds, which should ease out over the next few quarters. Despite operating in a dicey environment, the firm generated $34 billion in operational cash flows and returned more than $25 billion to its shareholders while investing in long-term growth plans.
Additionally, its services business continues to shine, generating a record $20.7 billion in sales, improving by 6.4% from the prior-year period. Moreover, services revenue for the firm has grown by 568% from its 2013 level.
Best Tech Stocks to Buy: Roblox (RBLX)
Metaverse video game developer Roblox (NYSE:RBLX) was a smash hit during the pandemic, with its bookings growing over 200%. However, reality came crashing down post-pandemic, with its top and bottom lines feeling the brunt of the re-opening headwinds. Nevertheless, the company seems to be back in growth mode after posting vigorous revenue growth in the past few quarters.
Its fourth-quarter results beat estimates by $14.7 million, with 58.8 million average daily active users, up 19% from the prior-year period. Its users spent over 12.8 billion hours engaged on its platform during the quarter, up 18% from the fourth quarter of 2021. Perhaps more impressively, its loss per share of 48 cents, beating estimates of a per-share loss of 54 cents. Its adjusted EBITDA saw massive improvements, with an effective rebound to $183 million in its December quarter. The improvements in its profitability and strong revenue growth should push the stock past its 52-week high price to new heights.
Streaming pioneer Netflix (NASDAQ:NFLX) had a volatile 12 months, where it shed customers for the first in over a decade. Also, its stock was down over 50% at one time during the year. However, in the past few quarters, Netflix has returned to winning ways, reporting $31.6 billion in sales for fiscal 2022, a 6.4% improvement from 2021.
It wrapped its fourth quarter adding 7.6 million subscribers, roughly 3.09 million higher than analyst expectations. More importantly, though, it didn’t see much plan-switching among customers, which indicates that few users are moving down to cheaper, ad-supported tiers. As we advance, the success of its ads-supported tier could be crucial in adding another dimension to business. According to the company’s CFO Spencer Neumann, Disney-controlled Hulu earns roughly 50% of its sales from its ad plans, pointing to a healthy upside potential ahead for Netflix.
Amazon (NASDAQ:AMZN) is a juggernaut in the eCommerce space commanding a 38% share of the U.S. market. However, over the past few years, its focus has been on its services business, generating significantly higher margins for the firm than its core products business.
Selling discount products has never been profitable for Amazon, but its transition towards a services model has helped mitigate its losses. For instance, its cloud service, Amazon Web Services, has generated more than a 25% operating margin in recent quarters, which has proven remarkably lucrative. AWS generated $22.8 billion in trailing twelve-month operating income while its profits dropped for other business segments. Amazon has been mighty effective in leveraging the success of its products business to scale its services business, which will continue expanding its margins.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) was a top battleground stock last year, with multiple narratives swirling around it. One would argue that most of its problems were of its own undoing, along with the macro environment exasperating its problems. However, the announcements made in its recent earnings call were a breath of fresh air, with the investing punditry jumping on its bandwagon again.
It seems that Meta is finally looking to control costs and focus more on practical and more sustainable trends in the tech sphere, such as AI. CEO Mark Zuckerberg deemed 2023 to be the “Year of Efficiency” where Meta would look to become a more nimble organization. That would entail less spending on the metaverse and more investments in AI. It recently introduced a new AI language model called LLaMA (Large Language Model Meta AI), which, similar to ChatGPT, mines massive amounts of data to generate content.
Okta (NASDAQ:OKTA) is a key player in cybersecurity, with its leadership position in providing identity access management. Cyber-attacks have become more widespread than ever before, with a 38% increase worldwide last year. Hence, despite the headwinds, Okta is in an excellent position to continue benefitting from the increasing need for potent cybersecurity solutions.
Okta’s bottom line has taken a hit recently, but its solid top-line base continues to shine each quarter. Okta’s revenue growth has averaged 43% on a year-over-year basis, which is impressive considering it operates in a relatively unstable environment. In its fourth quarter, the company added 550 new customers, reporting a 17% bump from the prior-year period to 17,600. Though the macro environment somewhat impacted its customer growth, its amazing retention rates of over 120% point to the stickiness of the platform.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.