The technology sector will continue to be one of the sectors for investors to buy in 2024. However, many investors are looking for tech stocks to buy that don’t include the Magnificent 7, which led the sector in 2023.
One way to find these stocks is to look at the sectors likely to shine in the new year. Not surprisingly, many of these sectors will have an artificial intelligence (AI) focus.
This list includes semiconductor stocks. Chip stocks are getting ready to enter a growth phase due to the demands of AI applications.
Cybersecurity is another sector that will continue to fuel growth in 2024. Every day, corporations are reminded that cybersecurity is now a must-have — not a nice-to-have. That is a case where AI is both friend and foe. Companies are using AI to provide cybersecurity solutions even as AI enhances the threat matrix.
AI will also continue to drive growth in areas like content creation. The creator economy is showcasing the possibility of expanding through generative AI.
Unlike a sector such as consumer discretionary, technology stocks are for growth investors. The profitable companies frequently have a high price-to-earnings (P/E) ratio. But if you’re looking for tech stocks to buy heading into 2024, here are three names to consider.
Micron Technology (MU)
Micron Technology (NASDAQ:MU) is the leader in dynamic random-access memory (DRAM) chips. Like many chip stocks, Micron’s stock slumped in 2022 as supply chains reset. MU stock is up 73% in 2023, and with the company’s revenue only beating that of the prior year in its last quarter, some investors may feel the best is priced in. But there’s one big reason for optimism.
That reason is AI. Companies like Nvidia (NASDAQ:NVDA) provide chips with the processing speed for AI applications. Those applications also require tremendous amounts of memory, which is where Micron comes in.
The company launched its HBM3E memory-chip module. The chip is specifically built to handle the demand for AI and supercomputing. Micron will produce the chips at scale early in 2024 and is forecasting several hundred million dollars in revenue in fiscal 2024.
Analysts continue to bid MU stock higher. More than a dozen analysts have boosted their price target for the stock since the earnings report. And out of 39 analysts, 25 give the stock a Strong Buy rating.
Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) is the next pick among tech stocks to buy. In fairness, there are many names to choose from, but you may want to consider Fortinet because it provides cybersecurity solutions for companies on a budget.
That’s not to say its products are inferior. In an interview with Forbes, Taz Koujalgi, an analyst for Wedbush, described two distinct approaches that companies are taking regarding cybersecurity. One is looking for best-in-class solutions for every threat. The other may look for the ability to deal with a single company. The choice depends on a company’s perception of its risk.
According to Koujalgi, Fortinet has over two dozen products that, while not best-in-class, are sufficient to meet the needs of most consumers who need practical cybersecurity solutions. That demand is reflected in the company’s revenue and earnings, which are both up year-over-year.
Another thing for investors to consider is Fortinet has a healthy balance sheet, including a growing free cash flow (FCF). That offsets the company’s debt, giving the company flexibility to make acquisitions.
FTNT stock is up 23% in 2023, even after a 19% drop in the last six months.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is another tech stock that delivered strong growth for shareholders in 2023. ADBE stock is up 77.9% in 2023. The reason is the company’s role in the creator economy. Like many companies, AI is a key driver of the company’s future growth.
Adobe is incorporating AI into many of its products, including its Firefly suite. That will capitalize on the need for content creators to generate images for their content.
One of the most common metrics for understanding a stock’s valuation is its price-to-earnings (P/E) ratio. P/E ratios in the tech sector are generally higher than the average of an index like the S&P 500. Adobe is no exception. If you’re going to invest in ADBE stock, you’ll have to get past a forward P/E ratio of over 33x earnings.
ADBE stock is down 4% in the last month. Much of that is due to lower guidance for the coming year. However, smaller growth is still growth, and analysts seem to agree. Investors should expect a pullback in the stock, presenting a buyable dip.
On the date of publication, Chris Markoch did not hold (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.
