Technological breakthroughs continue to dominate the minds and imaginations of investors in the stock market. The rise of AI technology has fueled rapid change, especially in the e-commerce, digital media and fintech industries. Although there’s plenty of revolutionary growth to come, and tech stocks may take time to reflect this growth, there are still some long-term winners to consider. Yes, even with a potential recession on the horizon.
These tech stocks to buy are starting to look intriguing at current levels. Whether it’s because of their discount to their peak or historical valuation averages, these companies have excellent risk-reward upside right now. Let’s dive into why these three tech stocks are moving up my watch list.
Zoom Communications (ZM)
Zoom (NASDAQ:ZM), the leading videoconferencing software with over 50% market share in 2022, showed Q2 revenue growth of 3%. Analysts anticipate 11.7% growth by 2027.
Zoom’s strong global presence and financial health differentiate it from its peers. With $6 billion in cash, $336 million in cash flow, and a $197 million profit in H1 2023, Zoom remains a steady player in a fast-growing market. However, revenue growth may need to accelerate to regain its growth stock status. Thus, I’m watching this tech stock for a breakout, which is a prudent move for most investors.
Zoom’s path to future growth hinges on its expansion in the corporate sector and transformation into a comprehensive business communication platform. The company is incorporating AI into products like Zoom IQ, streamlining collaboration, and recently invested in Anthropic, an AI startup. They’re also improving agent productivity with Zoom Workforce Management.
If these investments pay off, the company’s growth can accelerate to a level even the most bullish analysts don’t think is possible. Time will tell, but I’m watching this stock closely, as it remains a “show me” story to a certain degree.
Spotify (SPOT)
Founded in 2006, Spotify (NYSE:SPOT) had a significant head start when it entered the U.S. market in 2011. It competes globally with tech giants like Alphabet and Amazon, but its strong focus on music streaming sets it apart.
In recent quarterly results, Spotify surpassed industry trends with a 27% increase in monthly active users, reaching 551 million, and a 17% rise in paying subscribers, reaching 220 million. These figures exceeded expectations, demonstrating Spotify’s resilience in a competitive market.
Spotify had a strong year with $13.14 billion in revenue and 22.81% growth in operating cash flow, outperforming the sector. The company’s asset turnover was 1.69 times, indicating efficient asset use. Currently, SPOT stock is up a whopping 93% year-to-date. The company continues to innovate in music streaming, reducing piracy, offering free song access, and leading video podcasts with over 100,000. A redesigned app enhances the user experience and could drive continued value creation over time.
One of the more speculative picks on this list, I think Spotify could continue to see valuation growth over time. If the company can effectively dominate the market for podcasts and music streaming, this profit machine will turn out to be undervalued in hindsight.
Visa (V)
Visa (NYSE:V) thrives on several long-term growth drivers. Electronic payments are displacing cash, particularly in emerging markets. The growing global middle class is granting millions access to credit cards. With transaction-based revenue, inflation and larger transactions boost Visa’s profits.
In the recent fiscal third quarter, the company maintained a net profit margin above 50%, and revenue and earnings showed double-digit growth. Those are the kinds of numbers long-term investors want to see from a company with a market capitalization the size of Visa’s.
Despite its impressive 63% operating margin, Visa sees potential for more growth. With around 10% expected annual revenue growth, Visa aims for nearly 15% annual bottom-line growth, potentially doubling earnings in five years.
Visa’s shares have surged 375% in the past decade, showcasing remarkable strength. A similar move could be possible over the next decade if the strong secular tailwinds tied to a transition from cash to credit and online payments continue.
On the date of publication, Chris MacDonald 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.
