Table of Contents
In this article, we take a look at the 10 best technology stocks to buy for the long term. You can skip our detailed analysis of the tech industry and go straight to 5 Best Technology Stocks to Buy for Long Term.
The technology industry includes companies that design (research & develop), manufacture and sell products and services in software, robotics, biotechnology and electronics among others. The overall global market size for these industries stood at $10 trillion in 2021 and information technology comprised 80% of this market share.
The tech sector was already huge prior to 2020 but the pandemic accelerated the technology adoption due to lockdowns which led to a huge surge in online shopping, gaming and tele-working.
For instance, the e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) soared by 220% due to a spike in online shopping during the pandemic. On the other hand, cloud-based productivity software such as Google Workspace by Alphabet Inc. (NASDAQ:GOOG) and Office 365 by Microsoft Corporation (NASDAQ:MSFT), among others, replaced in-office collaboration to a large extent, allowing people to work from home during lockdowns. These trends continue to endure even as the effects of the pandemic wither away.
According to a report by Adobe, US consumers spent $1.7 trillion in online shopping from March 2020 to February 2022 which was $609 billion more than in the period of 2018-2020. Adobe estimates online shopping to surpass the $1 trillion figure in 2022 alone.
Apart from increased adoption of online shopping, adoption of remote work during the pandemic was another feature that has lingered on. A Pew report shows that only 20% of Americans whose jobs did not strictly require office presence worked from home all or most of the time before the pandemic. That share increased to 71% during the pandemic and 54% respondents said they’d want to continue to work from home even after the pandemic.
These, among others, are clear signals that increased adoption of technology that was observed during the pandemic, is set to stay even as the lockdowns ended. This translates to a consistent growth for tech companies that was observed during periods of lockdown. The IT sector is projected to add $1 trillion to its market share, reaching $9.3 trillion in 2022 even as inflation and the countering interest rate hike by the Federal Reserve has caused a downturn in the overall market.
Wall Street remains optimistic about the tech sector and analysts have raised earnings estimates by 2 percentage points for tech companies in the S&P 500. Other analysts suggest the timing is ideal to buy the dips in the tech industry and hold for the long term.
In the long run, the tech sector is projected to grow at a CAGR of 9% with a valuation of $12 trillion by 2025 according to a report by Research and Markets. The foremost arenas of innovation for the next decade include artificial intelligence, virtual reality, exascale computing and robotics. In this sense, companies innovating in these industries are expected to surge in value.
Photo by Javier Esteban on Unsplash
For our list of the 10 best technology stocks to buy for the long term, we have used certain valuation metrics to list fundamentally strong tech companies as well as to filter out drastically overvalued tech companies with massive debt.
Most importantly, we’d be factoring in the number of hedge funds that are bullish on each of these stocks as of the first quarter of 2022 as well as opinions from money managers. With that in mind, let’s move down to the 10 best technology stocks to buy for the long term.
10. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 76
Intel Corporation (NASDAQ:INTC) is an American multinational technology company primarily involved in designing and manufacturing Central Processing Units (CPUs). Intel 4004, a 4-bit microprocessor, was the world’s first microprocessor the company released in 1971. Ever since, Intel’s microprocessors have been the brains of the majority of the computers in the world.
Additionally, the company also represents the supercomputing industry. In February, 2022, Intel Corporation (NASDAQ:INTC) unveiled its processor, Ponte Vecchio, that will power the Aurora Supercomputer which is designed to hit the exascale computing threshold.
Intel Corporation (NASDAQ:INTC) is also heavily invested in autonomous driving technologies and acquired Mobileye, an Israel-based company, in 2017. On the AI front, the company is focused on the hardware side of things and manufactures accelerators exclusively optimized for AI like Xeon, Habana and Xe.
As of June 6, Intel Corporation (NASDAQ:INTC) has a dividend yield of 3.37% and its most recent payout was $0.365 per share on March 1, 2022, in line with previous ones. The company boasts an optimistic hedge fund sentiment with 76 hedge funds bullish on the stock and Baupost Group of Seth Klarman being the leading stakeholder with $0.8 billion worth of shares.
O’Keefe Stevens Advisors discussed Intel at length in their Q1, 2022 investor letter. Here is what it had to say:
“Intel announced they are removing stock-based compensation from non-GAAP earnings in 2022 to report results aligning with semiconductor peers. This may seem like a reasonable thing to do as comparability between peers becomes easier. On the other hand, what exactly is the point of adjusted earnings? It is not to conform to some industry norm or because the management teams need to make performance metrics. The point of adjusting earnings is to present results in a light that more closely reflects the actual underlying performance of the business. That is, backing out expenses that might be one-time in nature, such as legal or fire expenses. First off, share-based compensation is an actual expense. Decreasing my ownership stake in a company without receiving any compensation is not free. If a company paid its employees in all stock, would they add back the entire SBC? What a margin profile that would be. Second, should a company be worried about reporting results similar to other companies? Every company is unique. Management should not waste time determining what expenses should be excluded. Run the business, don’t worry about adjusting the numbers.”
The company has robust fundamentals, making it an attractive long-term investment with a P/E ratio of 6.9 which is considerably lower than average in the tech sector. Its debt is also only 36% of its equity reducing its overall risk profile as far as long term value investment goes. The consensus EPS forecast for fiscal year 2024 for the company is $3.9, evolving in line with past earnings. The metrics suggest INTC is one of the best technology stocks to buy for the long term.
Intel Corporation (NASDAQ:INTC), unlike Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG), is primarily focused on hardware development.
9. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Advanced Micro Devices, Inc. (NASDAQ:AMD) is an American multinational semiconductor corporation that develops CPUs and discrete GPUs. Its chips are widely popular among the video-gaming community across the world.
The company also develops and manufactures machine learning hardware like Instinct MI100 and MI200. Advanced Micro Devices, Inc. (NASDAQ:AMD) has also partnered with US Department of Energy and Lawrence Livermore National Laboratory to produce El Capitan, a supercomputer that is expected to cross the threshold of 2 exaFLOPS.
Advanced Micro Devices, Inc. (NASDAQ:AMD) was upgraded to ‘Overweight’ from ‘Neutral’ by Piper Sandler analyst Harsh Kumar on May 17. The analyst set the price target of $140, up from $98. The analyst said that AMD’s catalysts in the medium to long-term remain intact in the face of strong server and semi-custom trends, commercial growth in personal computers’ market offsetting consumer exposure in PCs, and Xilinx being a significant predictor to growth.
Kumar added that Advanced Micro Devices, Inc. (NASDAQ:AMD) has a coming catalyst in its investor day in the early days of June. “Buy good companies when they are down,” said the analyst. The consensus EPS forecast for AMD is $4.89 in the fiscal year end of 2024. Advanced Micro Devices, Inc. (NASDAQ:AMD) means business when it comes to fundamentals. It has only 3% debt as compared to its equity and a current ratio of 2.4 as of the first quarter of 2022 signifying an overall low risk profile.
The company beat consensus estimates on revenue and EPS by $313.37 million and $0.20 respectively with a revenue of $5.89 billion and an EPS of $1.13 in the first quarter of 2022.
The sentiment of hedge funds/investment firms around the stock is generally optimistic. Carillon Tower Advisers, an investing firm, brought AMD in discussion in their Q4, 2021 investor letter, highlighting its future prospects. Here is what the letter said:
“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
8. Palo Alto Networks, Inc. (NASDAQ:PANW)
Number of Hedge Fund Holders: 87
Palo Alto Networks, Inc. (NASDAQ:PANW) is an American cybersecurity corporation selling digital security services to over 70,000 organizations (including 85, in Fortune 100) in more than 150 countries. Its flagship products include advanced firewalls and malware detection/neutralization software like Traps and Wildfire which employ advanced techniques like deep learning to detect and neutralize cyber threats on enterprise scale.
Palo Alto Networks, Inc. (NASDAQ:PANW) had 87 hedge funds bullish on its stock in the first quarter of 2022. ClearBridge Investments, an asset management firm, discussed various stocks in a positive light in their Q1, 2022 letter and Palo Alto Networks, Inc. (NASDAQ:PANW) was one of them. Here is what the fund had to say about the stock.
“The portfolio also saw solid performance from cybersecurity names Palo Alto Networks, Inc. (NYSE:PANW) which is gaining prominence as the risk of global cyberattacks increases as part of the Russian offensive. On an individual stock basis, leading contributors to absolute returns in the first quarter included positions in Palo Alto Networks.”
On May 20, Wedbush analyst Daniel Ives lowered the price target on Palo Alto Networks, Inc. (NASDAQ:PANW) to $580 from $660 and kept an ‘Outperform’ rating on the stock.
“Palo Alto Networks, Inc. (NASDAQ:PANW) beat across the board for the April quarter and it appears the company’s cloud-driven strategy is resonating well with cybersecurity clients in the field,” Ives told investors in a research note. The analyst contended that the switch to cloud is a massive tailwind for Palo Alto as the cybersecurity firm is in the right spot at the right time to take advantage of the multi-year tide of cybersecurity enterprise spending.
Palo Alto Networks, Inc. (NASDAQ:PANW) is hyperspecialized in cybersecurity and is not as diversified as Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG).
7. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 100
Alibaba Group Holding Limited (NYSE:BABA) is the only Chinese multinational technology company to make it to the list of 10 best technology stocks to buy for the long term. The company operates various technology subsidiaries and has a diverse portfolio in the technology sector surpassing software and hardware.
Apart from e-commerce platforms like Alibaba and AliExpress, Alibaba Group Holding Limited provides other services in cloud computing, messaging services, web browsing, web hosting and payment processing solutions on the software side. It also produces microprocessors and AI accelerators.
Baron Funds discussed Alibaba Group Holding Limited in their Q1, 2022 investor letter. Here is what they said.
“We have eliminated 6 holdings during the first quarter (including) Alibaba. We have sold our Alibaba Group Holding Limited position as the company continues to face competitive challenges and regulatory pressures remain, making it difficult (if not impossible) to appropriately assess the range of outcomes and associated probabilities for the future profitability of the business.”
However, its worth mentioning that while Baron Funds sold their position, 100 hedge funds remain bullish on the stock as of the first quarter of 2022 with the prominent Fisher Asset Management being the leading investor holding shares worth $1.5 billion.
Insofar as the analyst expertise is concerned, Truist analyst Youssef Squali raised the price target on Alibaba Group Holding Limited (NYSE:BABA) to $145 up from $132 and kept a ‘Buy’ rating on the shares on May 31.
Squali stated that while Alibaba Group Holding Limited (NYSE:BABA) is not “out of the woods” from macro headwinds just yet, he is more optimistic on the stock given the bullish commentary from PRC’s Vice President about upcoming measures to boost economic growth, the healthy early cues for Chinese audit concessions amid the US de-listing warnings, and the management’s cost optimization measures to reduce Alibaba Group Holding Limited (NYSE:BABA)’s short-term margin pressures.
Citi analyst Alicia Yap lowered the price target on Alibaba Group Holding Limited (NYSE:BABA) to $176 from $177 and kept a ‘Buy’ rating on the shares after the “solid” fiscal Q4 results. The analyst brings to light strong cash flow and BABA stock’s valuation trading close to a historical trough for the ‘Buy’ rating.
When it comes to risk assessment, Alibaba Group Holding Limited (NYSE:BABA) is in safe waters with a higher than industry-average current ratio of 1.66 and a lower than risky D/E of 14% as of the first quarter of 2022. The consensus EPS forecast for the stock for the fiscal year end of March, 2026 is $10.8, in line with earnings in the previous years. Fundamentals and earnings estimates cement Alibaba’s position as one of the best technology stocks to buy for the long term.
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation (NASDAQ:NVDA) is another American multinational company in the list of 10 best technology stocks to buy for the long term. NVIDIA Corporation (NASDAQ:NVDA) is primarily in the business of hardware and specializes in producing Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs) for the gaming and AI industry.
NVIDIA Corporation (NASDAQ:NVDA) traditionally focused on gaming-optimized hardware but has also taken a keen interest in artificial intelligence as well as virtual reality as of late. When it comes to AI, the company has come up with competitive solutions on both the hardware as well as software sides like DGX systems and Megatron.
It is also represented in the autonomous driving sector and provides machine-learning solutions in the self-driving automotive industry. On the virtual reality front, NVIDIA Corporation (NASDAQ:NVDA) has announced ambitious plans in what it termed the Omniverse, a virtual environment for design collaboration and 3D simulation as well as game development. It also unveiled plans for a supercomputer called Earth 2. A supercomputer to model Earth with high fidelity for climate studies/simulations and other applications.
The consensus EPS forecast for the year 2025 for NVIDIA Corporation (NASDAQ:NVDA) was $6.18 evolving in line with previous earnings. Risk wise, NVIDIA Corporation (NASDAQ:NVDA) is relatively safe with an impressive higher than industry-average current ratio of 5.3 and D/E ratio of 41.5% in the Q1, 2022, making it one of the best technology stocks to buy for the long term.
RiverPark Long/Short Opportunity Fund had some good things to say about NVIDIA Corporation (NASDAQ:NVDA) in their Q1, 2022 investor letter.
“Nvidia is the leading designer of graphics processing chips (commonly known as GPU’s- graphics processing units), required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming- focused chip vendor to one of the largest semiconductor/software vendors in the world, dominating the core secular growth markets of gaming, data centers and professional visualization. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. For 2021 the company generated 61% revenue growth to $27 billion, expanded its EBITDA margins to over 44% and generated over $8 billion of free cash flow. Over the past five years, the company has generated a cumulative $23 billion of FCF after cumulative capital expenditures of less than $4 billion.”
Analysts are also optimistic when it comes to Nvidia. On May 26, Evercore ISI analyst C.J. Muse reiterated Nvidia as a “Top Pick” with an ‘Outperform’ rating and a price target of $300.
Muse stated that NVIDIA Corporation (NASDAQ:NVDA) offered a weaker than consensus guidance but the blame was placed on lockdowns in China rather than investors’ fears of a gaming reset and the “cut may fall short of a desired full reset.”
However, data center now holds the largest segment in the company and it was guided to grow again quarter-over-quarter into the month of July and see sequential growth keeping on through the year, Muse continued. With shares at $158 in the after-market, he contended “it’s time to put a line in the sand” and made the case that Nvidia shares “are now at a point too cheap to ignore.”
NVIDIA Corporation (NASDAQ:NVDA) is a direct competitor of Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc. (NASDAQ:GOOG) when it comes to artificial intelligence.
Click to continue reading and see the 5 Best Technology Stocks to Buy for Long Term. Suggested Articles:
Disclosure: none. 10 Best Technology Stocks to Buy for Long Term is originally published on Insider Monkey.