Best Tech Stocks to Buy in 2023
So you want to invest in technology sector stocks. But what, exactly, does that mean?
At its highest level, technology can be defined as applying scientific knowledge for practical purposes. Those purposes span virtually every industry and generally aim to change the world for the better, improving some aspect of people’s lives in the process.
As an investor, you have the opportunity to put your money to work to that end in literally thousands of compelling technology sector stocks.
Understanding the Technology Sector
According to the widely followed Global Industry Classification System (GICS), the information technology sector comprises companies in the software and software services industries (including IT services), technology hardware and equipment (including technology hardware, storage, peripherals, communications equipment, and other electronics hardware), and semiconductors and related semiconductor equipment.
Best Technology Stocks to Buy
There are thousands of prospective technology sector stocks, from innovative software companies to consumer electronics leaders, IT services firms, internet titans, and chipmakers.
But the following five stocks, in particular, are global leaders in their respective industries and stand out as excellent portfolio cornerstone candidates for investors seeking the best of the best in technology:
Amazon.com (NASDAQ: AMZN)
Amazon (AMZN) – Get Free Report is the unrivaled leader in the fast-growing e-commerce market, commanding nearly 40% of all e-commerce sales in the U.S. as of mid-2022. It also boasts the world’s most comprehensive and broadly adopted cloud platform in Amazon Web Services (AWS). You might wonder how much larger Amazon can become, with a market capitalization of over $900 billion as of this writing. But with e-commerce still representing less than 15% of total retail sales in the U.S. and the shift to cloud computing in its early stages, I believe Amazon has a long, enviable runway for growth.
Apple (NASDAQ: AAPL)
A dividend-paying, cash-generating behemoth in the world of consumer electronics, software, and online services, Apple (AAPL) – Get Free Report stands tall as the largest company in the world, with a market capitalization of nearly $2.2 trillion. Apple’s supply chain mastery and premium brand have helped it sell more than two billion of its flagship smartphones since its first iPhone was unveiled 15 years ago. The Apple ecosystem also includes the Apple Watch, AirPods, Apple TV, iPad tablets, Mac computers and notebooks, and many related digital services spanning everything from television to music, fitness, gaming, and payments.
Nvidia (NASDAQ: NVDA)
Nvidia (NVDA) – Get Free Report pioneered the graphics processing unit (GPU) more than two decades ago and revolutionized the PC gaming industry. Today it’s the world’s leading producer of GPUs. NVIDIA’s chips have also expanded to accelerate computing capabilities across the professional visualization, data center, and automotive spaces. Nvidia estimates the collective total addressable market for its products at more than $1 trillion.
Microsoft (NASDAQ: MSFT)
From its origins in launching the earliest version of the Windows operating system in 1985, Microsoft (MSFT) – Get Free Report has cemented its position as a premier provider of software, hardware, and computing solutions. Its products include productivity and business software (like Microsoft Office and LinkedIn), cloud-computing solutions (through its Azure cloud-services platform), and personal computing devices (with its Xbox gaming platform, Surface PC, laptops, and accessories lines). With steady growth and cash generation, and a modest, growing dividend yielding around 1.2%, it’s one of the best bets in the technology sector.
Block (NYSE: SQ)
Block (SQ) – Get Free Report is the parent company of Square, Cash App, buy-now-pay-later firm Afterpay, music-streaming platform TIDAL, and cryptocurrency-centric businesses TBD and Spiral (formerly Square Crypto). Even so, Block remains a much smaller business today than the other technology stocks in this list, with a market cap of less than $40 billion.
But with its stated mission of fostering economic empowerment and building tools to help increase access to the economy, Block’s two core businesses alone (Square and Cash App) have penetrated only a small fraction of their total addressable market worth nearly $200 billion.
Advantages of Investing in Technology Stocks
One key advantage to investing in technology stocks is the ability to put money to work in exciting, innovative companies with massive long-term potential. As these companies scale and enjoy mass adoption of their respective products, the best ones tend to enjoy strong network effects that further fuel the momentum of their products and businesses.
As such, technology stocks tend to enjoy higher potential for outsized returns — albeit often with higher risk and greater volatility. So it should come as no surprise that at the halfway point of 2022, eight of the top 10 largest companies in the world, as measured by market capitalization, were tech stocks.
Risks of Investing in Technology Stocks
Given the fast-paced nature of the technology sector, tech stocks often risk being disrupted by smaller, up-and-coming competitors with new or superior technologies. As a result, Technology companies must continuously spend on research and development to maintain their industry leadership.
In times of economic uncertainty and as the cost of borrowing increases — particularly when central banks adopt more hawkish currency policies — this spending can lead to outsized cash-burning for yet-to-be-profitable stocks that often sacrifice near-term profitability for market share and top-line growth. And as interest rates rise, the valuation multiples the market is willing to pay for such stocks tend to compress.
The Bottom Line
Technology sector stocks give investors a way to own a piece of many exciting, innovative businesses working to shape almost every aspect of our lives positively. Of course, tech stocks tend to be more volatile than those in many other sectors, given the fast pace of change and their R&D nature. But focusing on the highest-quality tech stocks also provides opportunities to enjoy market-beating gains.
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