The technology sector has been one of the most reliable bets in the stock market so far this year. The sector has outperformed the broader indices and is poised to gain further with the second wave of coronavirus infections making people more dependent on remote activities.
Most investors might feel that it is best to pick large-cap tech stocks for their portfolios. However, for better returns, it is wise to invest in high-growth stocks irrespective of their size. Your portfolio could comprise of companies across market caps, yet be a winning combination due to their business growth prospects.
One of the favorite picks among large-cap tech stocks has been Apple (AAPL) due to its impressive growth story. However, facts suggest that its growth may have reached a saturation point. While the 5G super cycle seemed to be the biggest trump card for AAPL, its earnings call suggested that the company expects a rather weak 5G iPhone cycle. The company’s latest quarterly results also saw weaker-than-expected iPhone sales and a decline in revenue from China.
The major onus for growth rests on the company’s service segment now. Moreover, with the win of President-elect Joe Biden, APPL might also be embroiled in antitrust lawsuits in times to come.
Hence, investors may want to consider other high-growth technology companies like Facebook, Inc. (FB), NVIDIA Corporation (NVDA), Advanced Micro Devices, Inc. (AMD), and Square, Inc. (SQ). All these companies are making a mark in disruptive technologies like advanced gaming, AI, digital payments, and cryptocurrency.
Facebook, Inc. (FB)
FB connects people through personal computers, mobile devices, virtual reality headsets, and in-home devices worldwide. The company also has a photo-sharing app, Instagram and messaging app, WhatsApp. FB also offers Oculus virtual reality products which allows people to come together and share experiences. The company is also planning to foray into the cryptocurrency market.
In a move to make the platform more secure, FB launched new artificial intelligence (AI)-powered systems to detect misinformation on its platform. The systems leverage several technologies, such as ObjectDNA, which focuses only on specific key objects within the image while ignoring background clutter.
FB’s revenue for the third quarter that ended September 2020, soared 21.6% year-over-year to $21.5 billion, on the back of strong growth in its advertising revenue. Meanwhile, EPS jumped 27.8% over the same period last year to $2.71. The company’s daily active users (DAUs) increased nearly 12% to 1.82 billion. The pandemic situation compelled people to depend on platforms like FB to connect with others for personal or commercial reasons.
FB climbed 31.4% year-to-date to close at $269.70 on Friday. Over the past six months, the stock has gained 17.3%.
The Consensus estimate for revenue for the quarter ending December 2020 is $26.3 billion, indicating a 24.6% year-over-year increase. Analysts also expect EPS to jump 23.8% year-over-year to $3.17.
How does FB stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
A for Industry Rank
B for Overall POWR Rating
FB is also ranked #6 out of 58 stocks in the Internet industry
NVIDIA Corporation (NVDA)
NVDA is one of the leading manufacturers of graphics processing units (or GPUs) that have become increasingly critical in gaming, AI, and autonomous vehicles. The company also has parallel processing capabilities that allows scientists and researchers to conduct high-performance applications with superlative efficiency. Since 2018, NVDA manufactures the Tegra mobile processors for tablets, smartphones, entertainment systems, and automobile navigation.
Last week, NVDA introduced the next generation of NVIDIA® Mellanox® 400G InfiniBand, which empowers AI developers and scientific researchers with a high-speed of networking performance to solve complex global problems.
NVDA’s revenue for the third quarter that ended October 2020 was $4.7 billion, up 57% from the same period a year ago, led by a 162% growth in Data Center revenue. NVDA’s gaming revenue also posted 37% growth. Its EPS also surged 46% year-over-year to $2.12.
The consensus estimate for NVDA’s revenue for the fourth quarter indicates a 55% increase year-over-year to $4.8 billion. EPS for the quarter is expected to grow 48.1% to $2.80.
On a year-to-date basis, NVDA surged 122.5% to close Friday’s session at $523.51. During the past six months, the stock rallied 45.9%. NVDA is well-positioned to grow due to its strength in gaming, cloud computing, autonomous machines, and AI.
It’s no surprise that NVDA is rated a “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Industry Rank. It also has a “B” for Buy & Hold Grade. In the 86-stock Semiconductor & Wireless Chip industry, it is ranked #34.
Advanced Micro Devices, Inc. (AMD)
AMD is a globally renowned semiconductor company operating through two segments-Computing and Graphics, as well as Enterprise, Embedded and Semi-Custom. x86 microprocessors chipsets, graphics processing units (GPUs), server and embedded processors, semi-custom System-on-Chip (SoC) products, and technology for game consoles are some of the key products manufactured by AMD.
Microsoft (MSFT) recently announced its collaboration with AMD to introduce its new security processor Pluton. Intel (INTC), and Qualcomm Technologies (QCOM) are the two other chip makers that have joined hands with MSFT. This processor is already being used in the Xbox and Azure Sphere. However, the alliance with AMD and others ill help MSFT upgrade the upcoming Windows PCs.
During the third quarter that ended September 2020, AMD’s revenue jumped 55.5% year-over-year to $2.8 billion, on the back of growth in its PC, gaming and data center products. The company’s EPS surged 190.9% for the quarter to $0.32. The company also launched its next generation Ryzen, Radeon, and EPYC processors during the quarter.
AMD ended Friday’s session to close at $84.64, gaining 84.6% on a year-to-date basis. Over the past six months, the stock has soared 50.1%.
Analysts expect that for the quarter ending December, AMD’s revenue will be $3 billion, indicating a 41.6% year-over-year increase. Meanwhile, EPS For the quarter is likely to climb 43.8% to $0.46.
AMD’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” in Trade Grade and Industry Rank. It has a “B” in Buy & Hold Grade. Within the Semiconductor & Wireless Chip industry, it’s ranked #35 out of 86 stocks.
Square, Inc. (SQ)
SQ is a digital payment company that offers online and point-of-sale services in the United States as well as globally. Besides point-of-sales software, the company also offers the Magstripe reader and the Contactless and chip reader. SQ also offers managed payments, the Square Card, Square Capital, instant transfer, and payroll. In addition, the company offers Cash App, which enables customers to transfer, spend, and store money.
On November 19th, SQ invested nearly $18 million in Satispay SpA, an Italian mobile digital-payment platform. The core objective behind this investment is to expand its operations across the European markets. Last month, there were reports of SQ being involved in discussions to purchase Credit Karma’s tax-prep business.
SQ’s total revenue surged 138.5% year-over-year to $3 billion during the third quarter that ended September 2020. Strength in its SaaS and Bitcoin revenue were significant contributors to this revenue growth. The company’s Cash App ecosystem posted gross profit growth of 212%, compared to the same period last year. SQ’s EPS climbed to $0.08 as compared to $0.06 posted in the same period last year.
Analysts estimate sales for the quarter ending December 2020 to be up 387.2% to $3 billion. Meanwhile, analysts expect EPS to grow at the rate of 38% per annum over the next five years.
On a year to date basis, SQ rallied 213.5% to end Friday’s session at $195.97. During the past six months, SQ surged 138.9%.
SQ is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. It is also ranked #23 out of 236 stocks in the Financial Services (Enterprise).
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AAPL shares were trading at $114.10 per share on Monday afternoon, down $3.24 (-2.76%). Year-to-date, AAPL has gained 56.55%, versus a 12.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…