In this article, we will look at the 10 Best Technology Stocks to Buy for Long Term.
An Analysis of the Technology Industry
The technology industry is one of the key drivers of the global economy. According to MGI research, the global technology industry was valued at $8.51 trillion in 2022 and is forecasted to grow at a compound annual rate of 7.75% to reach $11.47 trillion by 2026. In the United States alone the information technology industry drives more than one-third of the national economy.
One of the latest trends in the tech industry has been the increasing investments in artificial intelligence by both tech giants and start-up companies. According to a July 3 report by Reuters, the US venture capital funding surged to $55.6 billion during the second quarter of 2024. The funding surged more than 47% on a quarterly basis and was mainly driven by significant investments in artificial intelligence companies including $6 billion raised by Elon Musk’s xAI.
However, over the past few months, the technology sector has seen a major sell-off due to what analysts call an “AI bubble”. The sell-off initiated with investors raising concerns over return on investment regarding the premium they have been paying as capital expenditure on artificial intelligence. On August 5, CNBC reported that the “Magnificent Seven” US tech companies lost a combined $1 trillion market value at the start of the trading day. As a result, NASDAQ was down 3%, marking the index’s steepest three-week slide in two years.
We recently covered the AI tech bubble in detail in 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst. Here’s a glimpse of the article:
“In the past few weeks, a major selloff in the technology sector, mostly over concerns about return on investments amid ballooning capital expenditures on artificial intelligence (AI), has hit the stock market, sending valuations crashing and igniting fears of an AI bubble at the marketplace that might be about to burst. However, Stacy Rasgon, who has covered semiconductor stocks, one of the most prominent sectors in the AI world, for over fifteen years, has advised investors to stay the course, terming fears of a bubble as overblown. Rasgon claims that even though chances of an air pocket, used to refer to stock plunges, are 100%, he is confident the time for them is not now. He pointed to the very real and massive AI data center build as an example, predicting it would go on for a few years, helping push AI stocks higher.”
Michael Landsberg, Landsberg Bennett Private Wealth CIO appeared on a CNBC interview to talk about the AI bubble. He believes that the AI bubble hasn’t popped yet and what we saw recently was a reset of the market, where the market resets out-of-sync factors, and does not mean that the analysts are not positive about AI. He further added that a lot of AI companies have had a great past six months and are growing their earnings. He believes that ultimately earnings drive any stock and as far as AI stocks are concerned their earnings are growing and will continue to grow, thereby increasing the price.
Moreover, Steve Eisman, Neuberger Berman Senior Portfolio Manager appeared on another CNBC interview termed the recent events as a “Psychological Rotation”. He mentioned that this was not a fundamental rotation, which could have been troublesome, rather it is a psychological rotation that will not hold for long. He further mentioned that Artificial intelligence is here to stay for years and he still sees massive growth opportunities for companies investing in AI.
Now that we have discussed the technology market, let’s take a look at the 10 best technology stocks to buy for the long term.
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Our Methodology
To compile the list of 10 best technology stocks to buy for the long term we used the Finviz and Yahoo Finance stock screeners. We searched for technology stocks and sorted them based on their market capitalization. From these stocks, we selected technology stocks that have been in business for 20 years or more and are expected to stay in business for several decades. Once we had the consolidated list, we ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Technology Stocks to Buy for Long Term
10. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 85
Tesla, Inc (NASDAQ:TSLA) is one of the 10 best technology stocks to buy for long terms. It was held by 85 hedge funds in Q2 2024, with total stakes worth $4.97 billion. Citadel Investment Group is the top shareholder of the company with a position worth $8.25 billion.
It is an American multinational company renowned for its energy generation, electric vehicles, and autonomous vehicle technology. The company has a market capitalization of $713.27 billion and has been driving significant revenue and earnings growth for over a decade. Over the past 10 years, the company has grown its top line by 44% and EBITDA by 74%, advocating long-term growth and strong fundamentals.
Much like its decade-long performance, the second quarter of 2024 was also a success for Tesla, Inc (NASDAQ:TSLA). It delivered record quarterly revenue of $25.5 billion, up 2% year-over-year, driven by an exceptional performance in its energy generation and storage revenue. The energy generation and storage revenue increased 100% year-over-year to more than $3 billion during the quarter.
While the energy business boosted the revenue for Tesla, Inc. (NASDAQ:TSLA), it also generated record profits for the company. The company generated around $1.6 billion as GAAP operating income during the quarter, on the back of more than 9.4 GWh deployments. Moreover, the GAAP net income of the company reached $1.5 billion indicating profitability even under tough market conditions.
Tesla, Inc. (NASDAQ:TSLA) has been making significant leaps with its full self-driving vehicles and is ready to roll out version 12.5 on the roads. As a move to improve acceptability for its autonomous vehicles, management has reduced the price of FSD (Supervised) in North America and has launched free trials for everyone.
Keeping in mind the company’s market capitalization, its ability to generate record revenues under tough market conditions, and its progress in next-generation electric and autonomous vehicle technology, it is safe to say that Tesla, Inc. (NASDAQ:TSLA) is well-placed for long-term growth.
Baron Partners Fund stated the following regarding Tesla, Inc. (NASDAQ:TSLA) in its Q2 2024 investor letter:
“Tesla, Inc. (NASDAQ:TSLA) manufactures electric vehicles, related software and components, and solar and energy storage products. The stock contributed as Tesla continued to drive vehicle manufacturing costs lower, accelerate the launch of new models, and invest heavily in its lucrative AI initiatives. Shareholders reaffirmed the CEO’s compensation plan, alleviating personnel and legal uncertainties. Despite material operational complexities resulting in significant shutdowns of key manufacturing facilities and lower sales volume, Tesla presented better-than-expected margins in the quarter. It expects to launch a lower cost model as soon as late 2024, which should result in accelerated revenue growth, reduced manufacturing costs, and increased factory utilization. The company continued to advance its autonomous driving capabilities, expanding its already significant data centers and developing its humanoid robot Optimus. These investments increased confidence in the attractive growth opportunities that remain ahead.”
9. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 100
QUALCOMM Incorporated (NASDAQ:QCOM) is another best technology stock to buy, with a robust history of growth. During the past 5 years, the company has grown its revenue by 8.16%, its net income by 21%, and its levered free cash flow by 6%.
It is a leading international corporation that specializes in developing foundational technologies for various wireless applications. The company generates record revenues from mainly three industries, Handsets (the largest market for QCOM), Automotive, and the Internet of Things.
QUALCOMM Incorporated (NASDAQ:QCOM) delivered strong financial results for Fiscal Q3 2024, with revenue and earnings beating analysts’ expectations. Revenue for the third quarter improved 11.24% year-over-year to reach $9.4 billion, ahead of market consensus by a huge margin of $173.5 million. Whereas, the earnings per share of the company were $2.33 beating expectations by $0.08.
So, how did the company achieve record revenues while its license to export to Huawei was revoked earlier than expected?
The Handsets segment is one of the major contributors to revenue growth for the company. The Huawei license headwind should have disrupted revenue growth for the company, however, QUALCOMM Incorporated (NASDAQ:QCOM) still increased its revenue guidance to $9.5 billion to $10.3 billion for the upcoming quarter.
The confidence of management originates from its exceptional performance in the automotive segment, which grew 87% year-over-year to reach $811 million during the quarter. QUALCOMM Incorporated (NASDAQ:QCOM) supplies digital technologies for the automotive industry, with applications in both combustion engines and electric vehicles, thereby substantially increasing the automotive market size for the company.
Moreover, the fiscal Q3 was not the only successful quarter for this segment, the company has been posting record automotive revenues consecutively for the past 4 quarters. Management expects the streak to continue throughout the year as it has secured at least 10 new design wins with global automakers.
QCOM is also cheap at current levels. It is trading at 17 times its forward earnings, a 27% discount to its sector. Moreover, its earnings are also expected to grow by 7.2% during the year to reach $9.04.
QCOM was held by 100 hedge funds in Q2 2024, with total stakes worth $8.83 billion. Matrix Capital Management is the top shareholder of the company, with a position worth $1.99 billion.
O’keefe Stevens Advisory stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter:
“During the quarter, the A.I. rally broadened beyond the obvious players of Nvidia, AMD, and hyperscalers. QUALCOMM Incorporated (NASDAQ:QCOM), a long-standing investment, is gaining recognition for integrating artificial intelligence into mobile phones. Qualcomm’s A.I. on-device capabilities enable real-time language translation, improved voice recognition, and sophisticated imaging techniques as A.I. becomes more integral to mobile experiences. Qualcomm benefits by leading the market in providing robust, efficient, and versatile A.I. solutions. A.I. could be the first technology advancement in several years to accelerate the smartphone replacement cycle as users desire these advanced capabilities.”
8. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 130
Broadcom Inc. (NASDAQ:AVGO) is a technology company that sells various semiconductor products that are used in various day-to-day electronic devices. The company sells System-on-Chips that integrate multiple functions to a single chip, networking chips used in houses, and enterprise networking, and Radio Frequency components that are critical for communication and GPS systems.
Broadcom Inc’s (NASDAQ:AVGO) technology application runs through almost every electronic device in your home ranging from your TV sets to sophisticated industrial applications. The stock was held by 130 hedge funds in Q2 2024, with total stakes worth $20.04 billion, making it one of the best technology stocks to buy for the long term. GQG Partners is the top shareholder of the company, with a position worth $5.19 billion.
The company posted a robust fiscal second quarter of 2024. Its revenue grew 43% year-over-year to reach $12.5 billion. Revenue growth was attributed to surging AI revenues for the company, which grew 280% year-over-year to reach $3.1 billion.
One of the strategic moves by management that has contributed greatly to the success of the company includes its integration with VMware, which is known for cloud and visualization technologies. The integration entails that VMware is now selling its product line under Broadcom’s brand name. As a result of this, more than 3,000 of Broadcom Inc’s (NASDAQ:AVGO) top customers have already started using VMware products thereby contributing heavily to the company’s revenue.
We have already witnessed how the company ramped up its AI segment revenues. Moving forward, management is in talks with leading AI companies such as OpenAI to design custom AI processors, which will provide another robust revenue stream for the company.
Over the past decade, Broadcom Inc (NASDAQ:AVGO) has been able to grow its revenue and net income by 31% and 33%, respectively. Thus indicating its ability to derive long-term growth across the board and that too while keeping a strong liquidity position as the levered free cash flow also grew by 48% during the past 10 years.
Although AVGO is trading at a premium to its sector, it can still be a viable option for growth investors as its earnings are expected to grow by 22.5% during the year to reach $1.36. Moreover, analysts believe Broadcom Inc (NASDAQ:AVGO) has the potential to become a trillion-dollar company stating it has gained an average of 40% over the last five years, and at this rate, the company would need another robust growth year to make itself a $1 trillion company.
Baron Opportunity Fund stated the following regarding Broadcom Inc. (NASDAQ:AVGO) in its Q2 2024 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) is a global technology leader that designs, develops, and supplies a broad range of semiconductor and infrastructure software solutions. The stock rose during the quarter as it reported strong earnings on the back of its two key growth drivers, AI semiconductors and its acquired VMware software business. The company once again increased its outlook for AI-related revenue, now expecting $11 billion or more this year (versus prior guidance for $10 billion), on the back of strength in both hyperscale custom compute and networking chips, where Broadcom maintains dominating share. In networking, Broadcom’s solutions are critical to enabling AI training factories to scale towards 100,000 chip clusters in the near term and 1 million chip clusters over the coming years. In AI custom compute, Broadcom designs custom accelerators for large consumer- internet AI companies (such as Google and Meta), who are building increasingly large AI clusters to drive improvements in user engagement and targeted advertising on their consumer media platforms. VMware remains on track to continue rapid sequential growth while simultaneously reducing operating expenses, driving faster-than-expected margin expansion and accretion, as management has simplified the product offering and is converting customers from a license model to subscriptions. We believe VMware will grow beyond the $4 billion near-term quarterly target, well above current analyst expectations. These two factors combined have caused a re-rating to the growth profile for the overall company. To quote CEO Hock Tan, “there is only one Broadcom. Period.”
