After tech’s rough 2022, many investors are giving these companies a fresh look today. With the crisis in the banking sector, for example, it’s understandable why investors are moving funds back into technology as a safe harbor.
However, many tech stocks have again become overvalued after such a sizable rally. As such, it’s important to use prudence when putting money into these companies now. With that in mind, let’s break down the prospects for three of the most popular tech stocks. Is Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), or Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) the best buy today?
The best argument for Apple is its stability. Investors have turned to AAPL stock in a rocky macroeconomic environment as a perfect defensive stock.
Apple mixes an unmatched consumer brand, strong pricing power, and a core product that consumers rely on regardless of what’s going on in the broader economy.
The issue, though, is that AAPL stock has reached a lofty valuation. Apple shares are up a surprising 38% year-to-date. That’s a simply massive move for a company that is already this large. It has also pushed shares up to nearly 30 times earnings.
And yet, actual operating results don’t justify anything like that. In its most recent quarterly earnings report, Apple announced that revenues declined 5% year-over-year. The company’s earnings per share also fell versus the same period of last year. It’s generally not wise to pay 30 times earnings for a shrinking company.
Apple has a great business. And it should have a fairly stable outlook for many years to come. But ultimately, the smartphone market is saturated, and Apple hasn’t shown much innovation outside of that in recent years. As such, investors should wait for a significantly lower price before buying AAPL stock.
Shares of semiconductor maker Nvidia have enjoyed an incredible rise in 2023. Shares are up more than 100% year-to-date. In doing so, the chip giant’s market capitalization has surpassed $700 billion, making it the fifth-largest company in the United States by market capitalization.
This is, to put it frankly, totally unfounded. Indeed, just look at the company’s recent earnings results. For the latest quarter, Nvidia’s revenues plunged 21% year over year. Earnings per share plummeted 52% from the same period of last year to just $0.57. Given the sharp decline in graphics card demand and associated pricing cuts, it’s not surprising that Nvidia’s other metrics also fell in sympathy.
So why is NVDA stock skyrocketing even as its actual graphics card business faces a historic bust? Artificial intelligence. Nvidia is an undisputed leader in AI, and at some point in the distant future, Nvidia will make a lot of money from AI innovations.
In 2023, however, Nvidia is reliant on things such as gaming and data centers to generate sales, and these categories are in a recession. NVDA stock is trading for nearly 70 times earnings, and said earnings are diminishing. Nvidia has a wonderful story about AI, but the financial results are nothing to cheer about.
Best Tech Stock to Buy: Alphabet (GOOG, GOOGL)
Fortunately, it’s not all bad news for the tech giants. There is one of the huge tech companies that is on sale and available to investors at a fine entry point today. That would be Alphabet.
GOOGL stock is merely flat over the past 12 months, in stark contrast to Apple and Nvidia. In fact, GOOGL stock was down quite a bit before its recent rebound. The drop came about thanks to worries that ChatGPT and other AI solutions might disrupt Google Search.
This was a misguided line of thinking. For one, the use cases between most ChatGPT and Google queries are quite different. And for another, analysts forgot that Alphabet itself is a leader in next-generation technologies such as quantum computing and artificial intelligence.
On the latter point, Alphabet relaunched its own AI tool, Bard, in May. Now, Bard is smarter and available nearly worldwide in English and several other languages. Google will also begin implementing Bard into many of its applications; instead of being disrupted by AI, Alphabet may end up making large profits from it.
Despite Alphabet’s alluring involvement in many cutting-edge technologies, including AI, GOOGL stock is selling at a mere 22 times forward earnings. The company is also buying back large chunks of stock, which will provide support whenever tech stocks experience another correction. Adding it all up, Alphabet is easily the top pick of the largest tech firms today.
On the date of publication, Ian Bezek 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.