The technology-heavy Nasdaq Composite is within striking distance of all-time highs set in December. Artificial intelligence (AI) has sparked growth and enthusiasm across the technology sector, fueling a rally that began in early 2023. Understandably, it has become increasingly challenging to find high-quality technology stocks trading at attractive prices.
But as I like to say, Wall Street is a market of stocks, not a stock market. In other words, there is always value somewhere.
High-growth industries within technology, like AI, cloud computing, semiconductors, and cybersecurity, provide excellent hunting grounds for investors seeking the most bang for their buck. Here are three top technology stocks you can buy right now:
Search engine giant Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is one of the few top tech stocks not trading near all-time highs. The "Magnificent Seven" stock has slipped since its fourth-quarter earnings release after the company disclosed plans to invest more money into AI data centers than analysts anticipated. Alphabet has traditionally generated gobs of cash profits through its advertising via Google and YouTube. These massive AI investments are new, impact cash flow, and don't have an immediate payoff.
However, as management said on the Q4 2024 earnings call, the investments support cloud demand that currently outstrips Alphabet's available capacity. Additionally, these investments don't compromise Alphabet's robust financials. The company generated over $72 billion in free cash flow (net of capital investments) in 2024 and still has a whopping $95 billion in cash to under $11 billion in debt.
Alphabet's golden goose, its ad business, grew over 10% in 2024. In other words, the core business is strong and can afford these investments aimed at long-term growth. Analysts estimate Alphabet will grow earnings by an average of over 16% annually over the long term. Yet, the stock's price-to-earnings ratio is just 23. The resulting PEG ratio (1.4) is among the best values in the Magnificent Seven today.
Next-generation cybersecurity company SentinelOne (NYSE: S) appears to be underappreciated by Wall Street. Its price-to-sales ratio (10) is notably lower than that of peers like CrowdStrike (30), Palo Alto Networks (17), and Zscaler (14). That's despite SentinelOne's revenue growth continually keeping pace with its competition. SentinelOne's lack of profits could explain the disparity, which is a fair knock on the stock. Yet, it could be overblown because the company is rapidly improving its operating margin and has plenty of cash to balance profitability and investing to grow the business.
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SentinelOne is poised to be a long-term winner in a competitive security market because its AI-powered security technology continues demonstrating its high-end performance. It routinely garners praise from industry benchmarks and analysts. Management has also gradually expanded beyond its core competency (endpoint security), launching new products like Singularity Data Lake for securing data and Purple AI, a generative AI that assists users.
The stock's lower valuation means shareholders could capture more of SentinelOne's organic growth as investment returns. If sentiment toward the stock improves, the potential valuation upgrade is a nice bonus that could fuel market-beating long-term returns. SentinelOne isn't as big or profitable as its peers right now. Still, the company carving out its piece of a large and fragmented security market could pay handsomely for patient investors.
Semiconductors have been all the rage in this AI gold rush. Chips are AI's building blocks; they power the data centers that train, power, and apply AI models. Several companies design and sell AI chips, but Taiwan Semiconductor Manufacturing (NYSE: TSM) produces most of them. It's the world's leading foundry (semiconductor manufacturer). The company produced about 64% of the world's chips in Q3 2024. Its leading capacity and capabilities make it the likely foundry of choice for the bleeding-edge chips that will drive progress in AI.
The most significant knock on Taiwan Semiconductor is its location in Taiwan, which is in a long-standing geopolitical conflict with China over its sovereignty. The threat of an escalation or invasion by China has understandably kept a lid on the stock's performance. This explains why a business that analysts estimate will grow earnings by an average of 33% annually over the long term trades at just 29 times earnings -- a PEG ratio under 1.
Taiwan Semiconductor has taken steps to mitigate its geopolitical exposure, like building foundries in other countries, including the United States. However, this doesn't completely erase the geopolitical risks, so investors must consider them when deciding whether to buy shares. That said, Taiwan Semiconductor dominates its industry and is a mission-critical AI company. It's hard to pass that up at such eye-popping value.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, CrowdStrike, Taiwan Semiconductor Manufacturing, and Zscaler. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
3 Top Tech Stocks to Buy Right Now was originally published by The Motley Fool
