Whether you’re new to stocks or a veteran looking for new investing ideas, here are three tech stocks that I would be comfortable buying today.
Microsoft (NASDAQ: MSFT) has generated an exceptional return of 280% over the past five years, but the company’s growth opportunities in cloud services should pave the way for further gains.
Microsoft continues to deliver double-digit revenue growth with impressive results from its smart cloud segment, which has grown to become the software giant’s largest company. The main driver here is Microsoft Azure, where revenue jumped 48% year over year in the last quarter.
Azure continues to gain new business from large companies that increasingly rely on cloud computing to securely manage IoT devices, build cloud applications, and process data using artificial intelligence, among other services.
Elsewhere, Microsoft’s consumer products continue to perform well. The number of monthly active devices using Windows 10 increased by double digits year over year in the first quarter of the fiscal year. In games, Xbox content and services revenue jumped 30% year-over-year ahead of the November launch of the Xbox Series X / S game console. The gaming segment was only 8% of total revenue in fiscal 2020, but Xbox business could start to grow significantly over the next decade depending on the outlook for the Xbox Game Pass subscription service, which already has 15 million members .
Microsoft is a highly profitable company and occupies an enviable position as a provider of software as a service. With a price-to-free cash flow (P / FCF) ratio of 33, the stock is not too expensive compared to Microsoft’s underlying growth and should provide satisfactory returns for many years to come.
Amazone (NASDAQ: AMZN) is dominant in e-commerce, but even though it’s a household name at this point, it still has a lot of potential for growth. Despite years of growth, e-commerce still accounts for less than 15% of total retail spending.
This holiday is expected to be the first quarter that Amazon surpasses $ 100 billion in revenue over a three-month period. Amazon reported third quarter revenue of $ 96 billion, a 37% year-over-year increase.
More and more people are shopping online, taking advantage of Amazon’s huge selection, fast shipping, and great customer service. According to consensus analysts’ estimates, Amazon would reach $ 119 billion in revenue for the fourth quarter, a 36% increase year-over-year.
Amazon recently saw higher engagement from Prime members as people take advantage of online grocery delivery from Whole Foods Market. Management also said in the latest earnings report that international engagement with Prime Video increased 80% year over year in the third quarter, a testament to the overwhelming attraction of a Prime member. .
If we like Microsoft for its growth prospects in cloud services, we should like Amazon even more, since Amazon Web Services controls the number one spot in the cloud infrastructure services market and accounts for the bulk of the operating profit of Amazon.
Amazon is more expensive than Microsoft, trading at a P / FCF ratio of 64, but Amazon is growing much faster and still has a long growth path. Amazon is one of my biggest holdings, and I would be comfortable adding more shares at today’s price points.
Unity software (NYSE: U) is the backbone of many leading video games designed for mobiles, consoles and PCs. It is the leading platform for the creation and exploitation of real-time interactive 3D content, and is growing rapidly, with revenues up 53% year-over-year in the third quarter.
The stock just completed its IPO in September and has already climbed 127%. It’s a high-flyer that could be volatile in the short term, which is sometimes comparable to growth stocks, but there are good reasons why investors are so bullish.
An investment in Unity stock is partly a gamble on the continued growth of the $ 175 billion video game industry, but it’s also a game on the general use of software to design and create products in the industry. the whole economy. In addition to helping game makers, the Unity platform is also used by filmmakers, industrial designers, artists, architects, and other professionals.
The company estimates that the addressable market for its platform is currently around $ 29 billion. But what’s exciting about Unity is that management sees potential for more use cases beyond what the platform currently serves. Some of these new use cases include autonomous driving simulation and augmented reality applications.
The main benefit that Unity offers to customers is similar to what is driving the growth of Microsoft’s cloud business – a cost-effective and fast solution compared to alternatives. For example, with Unity, game makers only need to create a game once before launching it on multiple platforms, such as PC, Nintendo Switch, Xbox, PlayStation, mobile and virtual reality.
Unity also offers solutions to help game creators monetize their content with in-game purchases and advertising, which is how more and more video game companies are increasing their revenue these days.
While the growth potential is enormous, investors may only want to start a small position in the stock at this time. Unity has a market value of $ 42 billion. That’s a steep valuation of 48 times its 12-month revenue of $ 674 million. However, the growth of the company should justify this valuation over time, but remember stocks could be bumpy in the short term.