Investments

What Is The Best Technology

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 10 minute read

When it comes to the stock market, the technology industry is easily the most fascinating segment. Every day, it seems, there’s another breakthrough in technology. When these products become widespread, the firms that produced them reap enormous financial rewards.

Since this is the case, it’s not shocking that technology is a highly sought after industry. However, just as in any other industry, some IT firms succeed while others fail. Your investment in the latter should not leave you empty-handed.

Technology Stocks to Buy

Common names tend to be among the finest technology stocks. After all, technological advancements are always on the minds of the public, and the most successful tech businesses are often household names. Still, you shouldn’t base your investment decisions on the strength of a stock’s brand name alone, whether it be tech or elsewhere.

The greatest stocks in the industry have reached a market saturation point and are still expanding. They stay on top because of their innovative spirit and competitive spirit.

  1. Amazon.com, Inc.

When discussing the best technology stocks, Amazon.com must inevitably be brought up. If you’re like the general public, you’re familiar with the corporation as an online retail powerhouse and have even made purchases from its website.

During the peak of the coronavirus epidemic, AMZN noticed a significant increase in sales. People were ordered to stay inside, so they turned to shopping online, and Amazon.com quickly became the most popular website for Americans to do their online shopping.

After the economy had reopened, many people predicted that the company’s income would decline. The opposite has really been true. Amazon has expanded its revenue every quarter since then, but at a slower rate and with results that haven’t always matched expectations.
Amazon is, however, approaching a potentially exciting phase of its business cycle.

The company’s primary goal throughout its existence has been to expand its top line at the expense of profit. This strategy is effective up to the point of market saturation, which Amazon has long since reached. Now that sales growth is slowing, the company’s attention has to shift to increasing profit margins.

Indeed, the corporation is taking these steps, but the market doesn’t yet appear to be reflecting this change in the stock price.

The Amazon Web Services (AWS) brand has propelled the corporation to prominence in the cloud computing industry. Software as a service provides intriguing margins and the ability to rapidly increase the company’s earnings per share, and the brand is popular among artificial intelligence engineers.

Further, an undervaluation case can be made. Even though Amazon’s P/E ratio is still at 52, it’s at a huge discount from the company’s historical value because of the stock’s precipitous decline during 2022.

In addition, the firm recently underwent a stock split, making investment in the company more accessible to the common person. Although these changes usually result in price increases, AMZN’s stock has not yet benefited from them, suggesting that the company still has some more upside.

It’s possible that this is why AMZN has a Strong Buy average rating among analysts and is the third most held stock in ETFs.

In sum, Amazon.com has encountered and will continue to encounter challenges in the future. On the other hand, the company’s prowess in e-commerce, growth into cloud computing, and other areas all point to it being a good choice. This undervaluation is the cherry on top of an already delicious dessert.

  1. Apple, Inc.

Another well-known brand that rose to prominence thanks to groundbreaking innovations is Apple. It is the largest U.S. corporation and the stock held by the most exchange-traded fund (ETF) investors. It is the second largest oil producer in the world, behind only Saudi Aramco.

Warren Buffett has been a fan of the stock for a long time. Although many investors were scared away from tech stocks in early 2022 due to the market selloff, Warren Buffett and Berkshire Hathaway were busy buying up shares.

The company’s cash flow has made Apple a top stock in the market. More than $70 billion more than its entire debt, it had $193 billion in cash on hand at the end of the first quarter.
Concerns about the company’s capacity to maintain positive sales growth despite flagging consumer confidence at the start of the year appear to have been allayed by its outstanding performance in the first quarter.

Despite this impressive expansion, the stock price has been flat to down thus far in 2022. The share price has dropped by more than 24% so far this year. While that is a potential downside, it is in fact an advantage.

That’s probably why a group of elite investors led by Warren Buffett is buying up shares of the firm.

As a result of recent drops, Apple’s valuation measurements are at their lowest point in years. This early investment is similar to redeeming a discount voucher. You might make the case that it’s on sale because of the economy, but Apple has always managed to weather economic storms. A debt-free scenario would still leave it with over $70 billion, giving it plenty of room to do what it does best: expand.

In conclusion, Apple is an inventive market leader, and betting against the firm right now is probably unwise.

  1. Microsoft Corporation

Microsoft started as a PC manufacturer but moved its focus to software as the market for PCs began to decline. It is now one of the largest corporations in the world, and software development is its primary business emphasis.

You’re using Microsoft products if you work with Word, Excel, Outlook, or Teams. The organization has even rethought its approach to software development in recent years. The business strategy changed from selling CDs annually to providing software as a service. In turn, this led to a dramatic decrease in expenses and a rise in profits, both of which improved the company’s free cash flow significantly.

An added bonus is that this company is trading at a historically low P/E ratio while being one of the most successful software businesses ever. There are two overstated factors that contribute to the discount:

  • General Downward Tech Stock Trend. This year, tech equities have been moving downward, and Microsoft has just followed suit. External anxieties over economic, geopolitical, and social situations are keeping prices low.
  • Activision Blizzard Acquisition. In January, Microsoft declared its ambition to acquire video game developer Activision Blizzard. Sadly, the arrangement has not yet materialized. Due to opposition from the Federal Trade Commission, it is feared that the deal may not be finalized. Microsoft is relying on the acquisition as its entry point into the metaverse, and investors are anxious that the deal may fail.

Here are some things I want to bring to your attention that should help soothe your concerns. Microsoft has been around since 1975, through the Great Depression, the Dot-Com Bubble, the Real Estate Bubble, the Great Recession, and even COVID-19. There has never been a crisis that the firm couldn’t weather, and every time it does, it becomes stronger than before. Consequently, it is likely that the current selloff was overdone due to unfounded fears.

For Microsoft, acquiring Activision Blizzard would be like unlocking the door to the metaverse, which is why the deal has been faced with regulatory resistance. You’ll hear two responses from me. To begin, some large mergers and acquisitions have been met with resistance from regulatory bodies but have finally been approved. Microsoft is gaining ground, with the labor union’s recent approval of the contract showing this.

Second, you can be sure that Microsoft CEO Satya Nadella has a fallback plan for a metaverse entry in the event that this acquisition does not go through. So, once again, it seems that people’s worries are unfounded.

Fortunately, a discount on one of the most successful software firms in the world has resulted from unfounded worries.

  1. Alphabet Inc

To add to the list of the world’s largest corporations is Alphabet. Many well-known brands fall under its umbrella, including:

  • Google. According to Statista, the leading search engine controls 28.6% of digital advertising spending in the United States.
  • YouTube. Statista reports that 81% of Americans utilize the social media behemoth YouTube.
  • Android. According to StatCounter, 71.86 percent of all mobile devices in the globe are Android handsets.

Even the most successful businesses have a hard time specializing. However, Alphabet’s preeminence in various industries isn’t its greatest strength.

Recent quarterly reports show no slowdown in activity for Alphabet, but its stock has been caught up in the tech selloff, resulting in significant reductions. Therefore, this market-leading technology firm with established growth qualities is now selling at a P/E ratio not dissimilar to that of the whole S&P 500.

This is an unprecedented low for Alphabet’s worth over the previous decade. It’s easy to see the value in Alphabet’s services. The firm already dominates certain markets and is expanding into others, where it will almost certainly succeed. There is no slowdown in ad income, no decrease in active users, and no true fundamental cause for the price to collapse. But it has fallen.

To paraphrase a number of great thinkers: “Buy when fear is high.” The potential for a recession and the subsequent drop in Alphabet’s revenue has investors worried. The firm has sufficient financial reserves to weather any such storm even if it materializes, but there is a good chance that such “nights” will never materialize. In any case, they are already priced into Alphabet stock, making it a buy.

  1. Netflix Inc.

You probably wouldn’t expect to hear Netflix cited as one of the top tech stocks to purchase in the present tense. The stock price has dropped by more than 70% this year, and the odds appear to be stacked against the firm.

The most recent quarter was the first time Netflix’s subscriber count decreased since becoming public, with the firm reporting a loss of 200,000 users. Where’s the catch, then?
Netflix has said that there are other causes for the decrease in active users. About 100 million individuals are watching Netflix for free every month, the company says, all because of password sharing. The organization also noted the increased levels of rivalry within the market.

The firm anticipates a further significant decline in active users in the coming quarter for the same reasons. Now, why in the world is Netflix included here? Investing in NFLX is a dangerous bet, but there are a few factors to consider before making the plunge:

  • Pruning Expenses The administration is aware of the situation and is taking measures to reduce expenditures. For the purpose of increasing profits, they have eliminated two percent of the staff and reduced spending in several other areas.
  • Managed Expenditures on Software Development. Netflix has matured into a media powerhouse by learning what viewers want from their favorite shows. Despite its reputation for throwing absurd quantities of money at doomed ventures, it is actually holding up the process. Instead, the network is refocusing its efforts on producing fewer programming at a cost that is appropriate for its budget. Also, the corporation is likely to have reduced its production costs because the shows it does make are anticipated to be successful.
  • Swapping Passwords Crackdown. Netflix is investigating ways to prevent the misuse of passwords. Though a fix may take a while to implement, if 100 million people don’t pay for it, they’ll be cut off from the service once it’s ready.
  • Fresh Level. When it comes to expanding their business and attracting new customers, Netflix also has ambitions to launch an ad-supported service tier.
  • Undervaluation. Right here is the meat of it. In the course of this year, Netflix stock has lost 70% of its value. The company is priced at a huge discount, but if all of its objectives related to the aforementioned areas pan out, it might quickly become a market darling.

Netflix is, without a doubt, a gamble. There are indications that the corporation has reached a plateau. But the stock is trading at a discount because it reflects a corporation that has been through tough times before and emerged stronger. If everything continues to go as planned, Netflix might be a huge boon to your portfolio. The management team appears to have a firm hold on the issue.

  1. Roku Inc.

Netflix began streaming in 1997, but streaming to a television was extremely difficult. Everything changed in 2008 when Roku introduced their streaming gadget. The company’s streaming gadget is still on sale today, and it offers more than just Netflix.

More than a few smart TVs already use Roku streaming capability. While the company’s history of firsts and domination in the streaming industry is fascinating, it is no longer where it generates the majority of its revenue. Targeted advertising has helped the corporation bring in millions of dollars.

Sixty million Roku accounts streamed roughly 21 billion hours of video in the first quarter, demonstrating the device’s massive popularity.

Maybe now is the greatest moment to make a purchase. Roku stock, like other technology stocks in 2022, has fallen sharply this year. The share price has dropped by more than 60%.
Concerns about this firm are similarly exaggerated. The once lucrative firm has announced a loss due to supply chain challenges that have increased manufacturing expenses, although these problems are only temporary and are not the primary reason for the reductions.

Roku will likely rapidly restore profitability once the supply chain blues have passed. After that point, the value stock’s status will shift to that of a growth stock, where it will likely continue to provide high returns for shareholders.

Bottom Line

It’s obvious that 2022 has not been the ideal year for technology stocks. Each stock on this list has dropped in price, but some more than others. Crowds scatter at times like these, but that’s also when you might get the best prices.

Do your own due diligence before investing in a stock just because some random person online thinks it’s undervalued. While technology stocks may seem like a lemon at first glance, with enough diligence you may transform that lemon into a long-term profit.

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