Best Tech Stocks of 2024: Tech Investing 101

The technology sector is vast and includes gadget makers, software developers, wireless providers, streaming services, semiconductor companies, and cloud computing providers, just to name a few. Companies that sell technology-intensive products and services are more likely to be in the technology sector.

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What are tech stocks?

What are tech stocks?

hardware company

They design and build devices such as:

  • computer.
  • smartphone.
  • fitness tracker.
  • smart speaker.
  • Enterprise equipment such as servers and network equipment.

software company

They design software that runs on hardware such as:

  • operating system.
  • database.
  • Cybersecurity software.
  • Productivity software.

Software companies are moving toward a Software-as-a-Service model, where customers buy subscriptions to programs rather than one-time licenses. This arrangement generates recurring revenue for the software company.

Semiconductor chips provide power to the hardware. Semiconductor companies design and/or manufacture central processing units, graphics processing units, memory chips, and a variety of other chips that help run today’s devices.

Telecommunication companies that provide wireless services belong to the technology sector. The same goes for video streaming companies that provide easy access to high-quality content and the cloud computing providers that power those streaming services.

Best Tech Stocks of 2024

Best Tech Stocks of 2024

Many of the world’s most valuable companies are technology companies. Below are some of the most powerful and impressive tech stocks for investors to consider.

  1. (AMZN 0.31%) is a leading online retailer and leading provider of cloud computing infrastructure.
  2. microsoft (MSFT -0.17%) is a leading software company known for its Windows PC operating system and Office productivity software. Microsoft is also his second largest provider of cloud infrastructure.
  3. apple (AAPL -1.06%) creates iPhone, iPad, and Mac computers. High customer loyalty has ensured many repeat customers, and the increase in services has made Apple’s ecosystem stable.
  4. intel (INTC 0.91%) is one of the world’s largest semiconductor companies. Intel designs and manufactures central processing units (CPUs) for PCs and servers, as well as specialized chips for applications such as artificial intelligence. The company is betting big on manufacturing, with plans to make chips for other companies.
  5. Netflix (NFLX -1.01%) is a top company in the video streaming industry, spending billions of dollars each year on content to keep its subscriber base engaged.
  6. meta platform (Meta -1.68%) is the largest social media company with more than 2 billion daily active users across Facebook, Instagram, Messenger, and WhatsApp. The company sees virtual reality as its future.
  7. alphabet (google 0.21%) (Google 0.04%) is the parent company of online search giant Google and the popular Android operating system for smartphones.

Meta (formerly Facebook), Amazon, Apple, Netflix, and Alphabet (Google) are sometimes grouped together as FAANG stocks. These companies dominate their industries, and their stocks have delivered impressive returns over the past decade. But that winning streak ended in 2022, with nearly every major tech stock falling along with the broader market.

Tech stocks, COVID-19, and the bear market

Tech stocks, COVID-19, and the bear market

It was impossible to predict in March 2020 what would happen to technology companies as the COVID-19 pandemic shut down the economy and led to mass job losses. Some technology companies experienced an immediate negative impact. Alphabet and Meta, for example, saw revenue growth slow significantly as hard-hit industries like travel and hospitality scaled back advertising efforts.

Other technology companies also flourished. Amazon benefited from strong e-commerce sales as shoppers avoided stores, and Netflix saw a surge in subscribers as homebound consumers spent more time watching TV. Insatiable demand for PCs, smartphones, and other devices has boosted sales at Intel, Microsoft, and Apple. The powerful combination of limited options for consumers to spend their money and unprecedented stimulus cash has allowed many technology companies to report record revenues and profits.

But 2022 was the beginning of the end of the pandemic’s great success. Rising inflation prompted the Federal Reserve to rapidly raise interest rates, squeezing consumer spending. As supply chains improved and pandemic-level demand subsided, the shortage turned into a glut. The stock market has fallen and entered bear market territory. Tech stocks performed worst.

  • Amazon significantly increased its e-commerce and cloud computing capabilities from 2020 to 2021 to meet incredible levels of demand. The company overbuilt on the e-commerce side and took time to close or postpone some warehouses in the second half of 2022 to cut costs. The cloud computing business is also starting to slow down slightly in 2022, and the company could face similar excess capacity issues there as well. Record profits during the pandemic quickly disappeared, with the company reporting a net loss of $3.8 billion in the first quarter of 2023 alone.
  • microsoft It benefited from strong PC sales during the pandemic. The PC market has experienced a resurgence, with unit sales increasing to the highest levels in a decade, ending a long period of decline. A combination of working and learning from home and stimulus cash helped fuel the boom. That boom has now turned into a historic recession. Global PC shipments decreased by 16% in 2022 and by 30% year-on-year in the first quarter of 2023. In the midst of this historic recession, Microsoft is making a big bet on artificial intelligence.

Related investment topics

How to analyze tech stocks

How to analyze tech stocks

For mature, profitable technology companies, the price-to-earnings ratio is a useful metric. Dividing a stock price by its earnings per share gives you a multiple that tells you how much a company’s current earnings are valued by the market. The higher the multiple, the more important the market is to future earnings growth.

Many high-tech companies are not profitable and cannot be evaluated based on price/earnings ratios. For young companies, increasing revenue is more important. If you’re investing in something unproven, you want to make sure it has solid growth prospects.

For unprofitable high-tech companies, it is also important that revenues shift from losses to profits. As a company grows, it should become more efficient, especially when it comes to the sales and marketing spend needed to close deals. If this isn’t the case, or if your expense-to-revenue ratio is increasing, this could be a sign that something is wrong.

At the end of the day, a good tech stock is one that trades at a reasonable valuation given its growth prospects. Accurately grasping these growth prospects is the difficult part. It makes sense to pay a premium for the stock if you expect earnings to soar in the coming years. However, if these growth forecasts are wrong, the investment may go awry.

Investing in exchange-traded funds (ETFs) that focus on tech stocks is one way to avoid making mistakes.of Ark Innovation ETF (Arkku -0.06%) is an option, but a fund’s bet on rapidly rising tech stocks may ultimately prove riskier than investing in the tech giants listed above.

Investing in tech stocks can be risky, but you can reduce that risk by only investing if you’re confident that their growth prospects justify their valuation.

Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Timothy Green has positions at Intel and Walt Disney. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, and Walt Disney. The Motley Fool recommends Intel and recommends the following options: A long January 2023 $57.50 call on Intel and a long January 2025 $45 call on Intel. The Motley Fool has a disclosure policy.

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