In this article we are going to review the 10 best technology stocks to buy. You can skip to our list of the 5 best technology stocks to buy if you are short on time.
There are conflicting signals about the health of the US economy. On the one hand the labor markets are red hot, and on the other hand GDP has contracted for 2 consecutive quarters. S&P 500 has been falling since January 4th, and the stock market dipped into bear market territory earlier this year. Investors are scared of recession, selling their stocks and consumers are tight on their budgets. Russia’s war in Ukraine, lockdowns in China, and interest rate hikes by the Federal Reserve have deeply affected the markets. What are the best technology stocks to buy in this environment?
Technology is the biggest segment in the US market. Competition and innovation are abundant. The rise of technology is prominent in many industries and can be seen in our everyday lives. We are still seeing the massive transformative effects of the internet revolution today. The massive productivity increases and comprehensive distributions in labor markets over the last 25 years continue to be more prominent day by day. Technology stocks were clear winners over the last two decades. Over the last 12 months we have seen huge declines in certain pockets of the technology sector, and we believe this created a rare opportunity to invest in tomorrow’s winners.
In the midst of daily chaos: the ongoing war in Ukraine, post covid effects and Fed Reserve’s interest rate increases, investors should think about the long term and not be confused about daily market fluctuations. New technologies are emerging in the following five areas according to Cathie Wood: blockchain technology, genome sequencing, robotics, artificial intelligence, and energy storage. Silicon Valley and the West Coast have been a dominant place for the world’s technology companies such as Apple, Microsoft, Amazon, and Alphabet. Although Beijing’s Zhongguancun, Beijing’s Silicon Valley of China, is the world’s other leading place in technology. China is also focusing on the technology industry and is advancing in several cutting-edge technologies including AI. But I digress: technology is a macroeconomic factor, and investors should not only look into the US markets but also into China to make better decisions for the future. This current technology boom is not only going to impact media, telecom, retail but all sectors. AI will soon (potentially in the next 10 years) start to take on jobs in numerous industries and it will not discriminate. AI will drive our cars, manage our portfolios, replace our routine jobs and more. It is in our benefit that we track the latest AI innovations and businesses that are leveraging AI advancements. Worldwide governments are making plans to utilize this new technology. But despite all these economic events and the continuing war, we should remain constant in our shares and think for the long term rather than stressing over the current events. AI is just one of these 5 new technological developments. The developments in genome sequencing, robotics, and energy storage will fundamentally change how we live our lives. That’s why we believe the technology sector is the best place to invest in over the long-term.
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Hedge funds don’t have stellar reputations these days as hedge fund failures get magnified in the media. You probably heard more about Tiger Global’s giant losses this year than the mind numbing returns of hedge funds’ top technology picks. Hedge funds have consistently been piling into technology stocks for the past decade. According to Insider Monkey’s calculations, “hedge funds’ top 5 stock picks returned 29.6% in 2021 and beat the market by 3.6 percentage points. From 2014 through the end of 2021, these 5 stocks returned 324.5% and beat the S&P 500 Index by 131 percentage points.” If you have invested in your portfolio into the top 5 hedge fund technology stocks, you would have quadrupled your money in 8 short years. That’s why we believe it is a good idea to go through the top 10 technology stocks among hedge funds.
Here are the 10 best technology stocks to buy according to hedge funds:
10. Alibaba Group Holding Limited (BABA)
Chinese multinational technology corporation Alibaba Group Holding Limited (BABA), better known as Alibaba, specializes in e-commerce, retail, the Internet, and technology. Alibaba Group Holding Limited has a market cap of $245 billion.
Alibaba has made technological advancements in its operations including cloud computing, digital media entertainment, and various business offerings. Alibaba has made initiatives on Tmall Genie, providing IoT-enabled smart home applications such as lights, speakers, and remote controls. Alibaba established Alibaba Cloud in 2009 which is the digital technology and intelligence backbone of the company. Alibaba’s strength is that it has a great business diversity and it benefits from broad economic growth in China.
Alibaba Cloud is contributing in resources and innovations to provide projects that are in line with its value and beliefs. Alibaba is using machine learning to digitize Chinese classics, uses healthcare for the underprivileged, and using AI, machine learning to track and foretell hunger in over 90 countries.
Alibaba is going through a challenging period and lost nearly 75% of its market value since Jack Ma’s famous speech. Despite the slowdown in Chinese growth due to its strict covid policies Alibaba managed to post more than $30 billion in quarterly revenue and $1.75 in earnings. If we annualize this quarterly earnings figure, Alibaba shares trade at 13 times its earnings. We believe this is a cheap price to pay for one of the biggest technology companies that is operating in the world’s soon-to-be biggest economy.
9.Paypal Holdings Inc (PYPL)
PayPal Holdings, Inc. (PYPL) is a technology platform that helps digital payments and commerce experiences for merchants and its customers. This two sided network connects merchants and consumers in 200 markets with 426 million active accounts. PayPal’s 2022 Q2 average shareholder price was $86.75. Billionaire Ken Fisher‘s Fisher Asset Management has the biggest position in PayPal in Insider Monkey’s database. Paypal Holdings Inc has a market cap $111 billion. PayPal shares lost around 70% of their value since peaking last year.
PayPal has been one of the prominent companies in the digital payment revolution for more than 20 years. PayPal Inc uses technology to make financial services and commerce easily protected and PayPal is entitling approximately 430 million consumer and merchants accounts. Paypal Inc is strengthening its digital wallet to become the world’s best, bringing value to its PayPal proposition, strengthening its merchants platform and investing in its key enablers. Here is what Wedgewood Partners said about PayPal recently:
“PayPal Holdings detracted from performance despite the Company generating healthy growth. Revenue grew +8%, but closer to +15% when adjusted for the well-telegraphed roll-off of its eBay relationship. As the Company laps the headwinds of eBay and difficult year ago comparisons, we expect PayPal should drive long-term growth in the mid-teens. Much of this will be driven by further penetration into the Company’s nearly 450 million active users. PayPal’s user base has grown by +50% since the onset of the pandemic so it makes sense for management to focus on driving higher transactions per account and better monetize this historical windfall of users. In our opinion, the shares have discounted away all of PayPal’s pandemic user and revenue gains, so we added to positions during the quarter.”
Several other hedge funds see short-term value in PayPal shares. Activist Elliott invested billions in PayPal and pushing the company to cut costs. That’s why we believe the downside in PayPal is limited in the short-term and it may be a great long-term investment. Harding Loevner Global Equity Fund agrees with us:
“We hold a similar view on other companies that hurt us this quarter: most of the specific blemishes that marred their shares are likely to be transient; the companies’ long-term prospects remain bright while the sell-off has left their shares more attractively priced. PayPal is admittedly at a crossroads with its still-untested strategy of focusing on deepening existing user relationships instead of growing e-commerce commissions off new users; but, at its current price, we are prepared to wait a while longer to gauge if it can succeed.”
8. Salesforce.com Inc (CRM)
Salesforce, Inc. (CRM) is a worldwide business that provides cloud-based software. Salesforce Inc has an emphasis on sales, customer service, marketing automation, analytics, and application development, the company creates customer relationship management software and solutions. Salesforce Inc had an average share price of $176.69 for Q2 2022. Salesforce Inc’s market capitalization is $ 189 billion.
Salesforce Inc, provides a tool for support, sales, and marketing teams worldwide. With the Customer 360 platform, the company connects customer data within all systems, apps and devices to assist companies to increase its revenues, service, and enable them to commerce from anywhere. Company continues to lead new technologies in cloud, mobile, social and Artificial Intelligence(AI). The main drivers for its revenue are subscription and support revenues, and professional services.
Based on FY22 Q4 results revenue was $7.33 Billion, increased 26% annually, FY22 revenue was $26.49 billion, and increased 25% per annum. The operating cash flow was $6.0 Billion and increased 25% annually. The secular growth in CRM’s revenue is probably attracting hedge funds into this compounder.
Salesforce Inc’s investment risks include periodic changes in its sales organization, its ability to deliver its services that are dependent on development and interference of the Internet by third parties. Moreover there are strategic and industry risks. Technology is a highly competitive company, and Salesforce Inc states it should maintain its rapidly evolving technology.
Some ESG goals of the Salesforce include its commitments to advance racial equality and justice and reduce greenhouse gas emissions.
Here’s what Vulcan Value Partners has to say about Salesforce, Inc:
Salesforce.com Inc. is the dominant provider of customer relationship management software and technology. Salesforce has high retention rates, pricing power, high free cash flow, and a competitive moat. The company continues to execute well. Margins decreased slightly during the fourth quarter but continue to be on path for material expansion over the long term. Salesforce is seeing increased spending as employees are returning to the office, and we believe the global pandemic has only improved its prospects.
7. Apple Inc (AAPL)
Apple Inc. (AAPL) is a multinational technology firm with headquarters in Cupertino, California, that focuses on consumer goods, software, and online services. Apple is the largest technology company by revenue: $387.5 billion. Apple Inc. has a market cap of $2.7 trillion.
Apple Inc. (Apple) creates, produces, and sells mobile phones, tablets, personal computers (PCs), portable electronics, and wearable technology. In addition, the business provides networking solutions, accessories, third-party digital content, and software and related services. The market for Apple Inc, is rivalrous, yet the company achieves mind-boggling margins. It is one of the best performing mega-cap technology stocks in this year’s tech rout.
Risk factors of investing in Apple Inc are Global and regional economic conditions that could materially adversely affect the company’s business, results of operations, financial condition and growth and the company may not be able to effectively compete in the highly competitive and technologically changing global markets for its goods and services.
Here is what Wedgewood Partners said about Apple Inc. (NASDAQ:AAPL) in its Q2 2022 investor letter:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit. As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
6. Uber Technologies Inc (UBER)
Uber Technologies, Inc. (UBER) enables customers to reserve a vehicle and driver for transportation that resembles a taxi. Its headquarters are in San Francisco, and as of 2021, it will operate in roughly 72 countries and 10,500 cities. Its services include ride-hailing, food delivery (Uber Eats and Postmates), package delivery, couriers, freight transportation, electric bicycles, and motorized scooters. Uber’s 2022 Q2 average shareholder price was $26.55. Uber Technologies, Inc has a market cap $63 billion.
Uber Inc is using AI to improve user experiences for their products, also uses machine learning such as improving safety, improving ETAs, and recommending food items as new innovations. Uber Inc has global brand recognition, a strong market position, and customer loyalty.
The investment risks for Uber are autonomous vehicles from companies such as Alphabet (GOOGL) and Tesla (TSLA). However, Uber Inc currently brings value to its customers.
Uber Inc has 9 material ESG issues and it is committed to sustainability. Uber Inc is giving importance to civil unrest regarding systemic racism and inequality, and the deeply recessed global economy.
Here is what ClearBridge Large Cap Growth Strategy has to say about Uber Technologies, Inc. in its Q3 2021 investor letter:
“We have also been looking for multiyear secular trends outside of the IT and Internet sectors to help us maintain a portfolio that can perform well in markets with varied sector or factor leadership. In particular, electrification of the global economy and the transition to electric vehicles (EVs) are areas where we continue to add exposure. We are investing in the brains behind EVs through NXP in the control center and Aptiv for safety features. Global rideshare leader Uber will also be a key player in the transition from internal combustion engines to EVs.”
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Disclosure: No positions. 10 Best Technology Stocks To Buy is originally published on Insider Monkey.