No sector suffered the wrath of investors more than the tech sector. When volatility returned to the market, stocks of technology companies dropped. First, it was the FAANG stocks in the summer and then the broader tech selloff in the fourth quarter. Was this a sign that the growth of the sector in 2017 was simply a bubble, or was it the result of a natural, albeit significant, correction? Unlike the early 2000s, this one looks more like a correction and that means there should be some positive growth in the sector for investors who know where to look.
One area to look at is the nascent 5G technology. As smartphone manufacturers look to bring this technology to market in a new generation of smartphones, there are companies that provide the technology that makes these connections work and they will be the winners as this technology moves into the adoption phase. Another area to look at is companies that make their business through cloud services. While some established companies have taken a revenue hit as they moved away from selling the hardware and infrastructure that came with their product, the move towards a subscription base is providing – in many cases – more predictable revenue streams.
And you can’t forget about social media which will continue to expand and change the way customers receive and send information. The company we list in this report may not be the one you expect, but it is one that may have figured out how to monetize its user base.
Quick Links
- NVIDIA
- Workday Inc
- Roku
- Qualcomm
- Keysight Technologies
- FireEye Inc.
- Twitter
#1 - NVIDIA (NASDAQ:NVDA)
NVIDIA (NASDAQ: NVDA) - No industry sums up the volatility of the tech sector more than the semiconductor industry. Nvidia’s stock saw a nearly three-year surge that saw it rise nearly 800% come crashing down at the end of 2018. However, the stock is bouncing back. Shares of NVDA are up nearly 22% for the year and just over 12% since March 8. Some of the reason for the stock’s slump was due to the cryptocurrency meltdown, but the extent of the stock’s crash showed a fundamental misunderstanding of the company’s product offerings. The graphic processors that the company designs, while essential for crypto-miners, are far more in demand for video games and datacenters – which include applications for artificial intelligence (AI). Currently, AI applications account for about 25% of Nvidia’s business. That’s where the news gets particularly enticing for investors. At the GTC 2019 conference on March 18, Nvidia CEO Jensen Huang announced the company’s partnership with Toyota Motors. In a nutshell, Nvidia through its DRIVE Constellation simulator is going to provide the technology that will allow Toyota to create virtual simulations which can lead to a rapid acceleration of the company’s testing capabilities while helping to cut costs, increase safety and improve efficiency.
About NVIDIA
NVIDIA Corporation provides graphics and compute and networking solutions in the United States, Taiwan, China, Hong Kong, and internationally. The Graphics segment offers GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU or vGPU software for cloud-based visual and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building and operating metaverse and 3D internet applications.
Read More - Current Price
- $145.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 40 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $154.63 (6.0% Upside)
#2 - Workday Inc (NASDAQ:WDAY)
Workday Inc. (NASDAQ: WDAY) - One of the key terms in the tech industry is recurring revenue. This means that instead of customers purchasing equipment for data storage or software, they subscribe to a cloud-based platform. And while Workday isn’t the first company to use the recurring revenue model, they are certainly finding it to be highly effective. Workday helps their customers manage human resources and financial industry needs through a series of cloud-based apps. In the third quarter of 2018, the company saw their subscription revenue increase nearly 35% year-over-year to $324 million. By the end of 2018, they had a subscription revenue backlog of $5.9 billion. Although WDAY is not yet profitable by GAAP standards, their non-GAAP earnings are showing impressive growth on the top and bottom lines. Analysts are projecting revenue growth of over 30% growth in this fiscal year and sales growth of 25%. The company is also generating strong per-share operating profits which grew from $1.03 in 2017 to $1.27 at the end of 2018 and are projected to reach $1.61 for fiscal year 2019. Since the start of 2019, Workday’s stock price is up over 17%.
About Workday
Workday, Inc provides enterprise cloud applications in the United States and internationally. Its applications help its customers to plan, execute, analyze, and extend to other applications and environments to manage their business and operations. The company offers a suite of financial management applications to maintain accounting information in the general ledger; manage financial processes, such as payables and receivables; identify real-time financial, operational, and management insights; enhance financial consolidation; reduce time-to-close; promote internal control and auditability; and achieve consistency across finance operations.
Read More - Current Price
- $259.44
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 21 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $289.46 (11.6% Upside)
#3 - Roku (NASDAQ:ROKU)
Roku (NASDAQ: ROKU) - Roku’s stock is on a tear, climbing nearly 50% in 2019. This has been par for the course for Roku which has given investors more than its share of ups and downs since its initial IPO in 2017. However, the latest surge for Roku started to take shape after their third-quarter earnings were released in 2018. Despite a stellar report, their shares dropped and analysts predicted that shares would continue to decline under the weight of increased expectations. Then Roku did something the market didn’t expect, they beat expectations again. But while that tells you what happened, the real story is understanding why it happened. Simply put, analysts have stopped viewing Roku as simply a player provider (the Roku stick, etc.) which is a commodity – and started seeing its growth as a platform provider. Although the company stood up to competitors like Apple, Amazon and Google – and they continue to show growth in that area - relying on hardware means tight margins and lower profit potential. What the latest earnings report illustrates is that Roku has become a platform provider with subscription revenue and ad revenue – which are the kind of things that boost profits and make investors giddy. Although there are threats to Roku’s platform service (Disney’s acquisition of Fox being the latest), analysts are projecting a 2 percent growth in revenue in 2019.
About Roku
Roku, Inc, together with its subsidiaries, operates a TV streaming platform in the United states and internationally. The company operates in two segments, Platform and Devices. Its streaming platform allows users to find and access TV shows, movies, news, sports, and others. The Platform segment offers digital advertising, including direct and programmatic video advertising, media and entertainment promotional spending, and related services; and streaming services distribution, such as subscription and transaction revenue shares, and sale of premium subscriptions and branded app buttons on remote controls.
Read More - Current Price
- $68.71
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $84.67 (23.2% Upside)
#4 - Qualcomm (NASDAQ:QCOM)
Qualcomm (NASDAQ: QCOM) - One of the key drivers of the tech sector will be the emergence of 5G wireless technology. At present, the network is just getting built out in some major U.S. cities. However, the ultimate application is smartphones, and that’s why Qualcomm is looking good right now. To be clear, QCOM stock is not for the faint of heart. Just last year the stock rose nearly 25% before giving back virtually all its gains as it got caught up in the swoon that fell over the entire tech sector. This year, the stock has not come out of the gate particularly strong, but that is expected to change. The company just introduced their latest 5G cellular modem the Snapdragon X55. Smartphone manufacturers are looking to accelerate the production of 5G smartphones. For example, only the very top of Samsung’s current Galaxy series of smartphones is 5G-enabled. But the one that does uses Qualcomm’s previous generation Snapdragon product. As Samsung looks to roll-out future versions of the Galaxy phones, they will likely all be 5G enabled with Qualcomm technology. In addition to aggressively taking the lead in the mobile processor technology space, Qualcomm should be able to enjoy higher margins.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $154.27
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $210.15 (36.2% Upside)
#5 - Keysight Technologies (NYSE:KEYS)
Keysight Technologies (NYSE: KEYS) - Keysight Technologies is another company that is benefiting from the commercialization of 5G technology. KEYS makes the testing equipment that offers solutions for the companies that are looking to profit from the development of a 5G network, particularly as 5G engineers look to ensure that all the complexity of 5G connections is addressed before the products reach the market. In fact, Keysight’s 5G toolset was the first to receive approval for 5G device-certification purposes giving it a leg up on competitors as other companies look for products to test their 5G technologies. Keystone has solutions that extend beyond 5G as well. The company has been looked to for testing solutions by a range of companies including network security developers, connected car designers, cloud-computing solutions providers and more. The stock is currently up 30% YTD and the company is projecting 12% earnings growth in 2019 suggesting the stock may still have room to run.
About Keysight Technologies
Keysight Technologies, Inc provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor, electronic, and education industries in the Americas, Europe, and the Asia Pacific. The company operates in two segments, Communications Solutions Group and Electronic Industrial Solutions Group.
Read More - Current Price
- $165.48
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 8 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $177.30 (7.1% Upside)
#6 - FireEye Inc. (NASDAQ:FEYE)
FireEye Inc. (NASDAQ: FEYE) - Another continuing focus of the technology sector is the issue of information security. FireEye came onto the scene in 2004. Since going public in 2013, it has failed to generate a lot of excitement among investors and it faces competition from a long list of companies highlighted by Palo Alto Networks, Fortinet and Cisco. These competitors have neutralized FEYE’s move from a seller of on-site appliances to a cloud-based service model. This move slowed its revenue growth, but the company expected it to pay off by generating consistent growth via subscriptions. The company went even further and bundled their threat prevention products into a single unified platform called Helix. The thought process was that a bundled platform would help create a moat from which the company could fight off competitors. The company is not yet profitable on a GAAP basis but did post their first quarter of break-even non GAAP earnings in the second quarter of 2018. Although the company is currently posting slower revenue and stock price growth than its leading competitors, the stock trades at a significantly lower price-to-earnings ratio which can make this a good investment for investors looking for a quick profit.
About FireEye
FireEye, Inc operates as an intelligence-led security company. The firm engages in intelligence-based cybersecurity solutions that allow organizations to prepare for, prevent, respond to and remediate cyber attacks. It operates through the following geographical segments: United States; EMEA; APAC; and Other.
Read More - Current Price
- $0.00
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#7 - Twitter (NYSE:TWTR)
Twitter (NYSE: TWTR) - Although you can hardly go a day without seeing a hashtag the tagging device that has become synonymous with Twitter, the stock and the company is still seen as being the little sibling of the social media space. Facebook has a much larger reach. And Snap has managed to generate a buzz, particularly among the younger demographic to which it is targeted. Like all social media sites, Twitter is navigating the cries for tighter regulation after the 2016 presidential election. One way Twitter is addressing it is to stop reporting monthly active users (MAUs) with their earnings report and instead focusing on monetized daily active users (mDAUs). These are users that engage with Twitter through an app or web browser that can receive ads. Although investors have punished the stock for this, it may be a strategy that is working. Twitter has historically lagged behind its peers in terms of generating ad revenue, but this is showing signs of changing. Another thing working in Twitter’s favor is their active effort to identify and shut down fake accounts. The market seems to agree. The stock is up over 11% in 2019.
About Twitter
Twitter, Inc operates as a platform for public self-expression and conversation in real-time. The company's primary product is Twitter, a platform that allows users to consume, create, distribute, and discover content. It also provides promoted products that enable advertisers to promote brands, products, and services, as well as enable advertisers to target an audience based on various factors, including who an account follows and actions taken on its platform, such as Tweets created and engagement with Tweets.
Read More - Current Price
- $53.70
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
Technology is always changing which is why technology stocks will always be among the most volatile for investors. As one technology moves out of fashion, another is there to replace it. However, as an investor, it can be hard to keep up with the daily scorecard. And with some stocks, if you miss the initial surge you’ve missed a lot. One way to help ensure you profit from investing in technology stocks is by understanding the underlying trends that will be moving the markets forward and investing in the companies that make those trends happen. In 2019, those trends include 5G, information security, and cloud-based services. And the companies we’ve identified in this report are helping facilitate the development of these technologies into tangible products that consumers will be buying. Take a few minutes to check out these seven stocks and make them a part of your portfolio. Or put them on your MarketBeat watch list and track their performance.
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