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.
A close-up of a hand reaching out to touch a virtual animation, demonstrating the power of the company’s IoT technology.
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.”
7. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the largest chip makers in the world. It accounts for more than 60% of foundry spending in the world justifying its huge market capitalization of more than $873 billion. The company develops chips that are powerful and power efficient, with applications in market-critical areas such as AI, data centers, and smartphones.
The competitive edge of the company lies in its huge scale boosted by one of the most advanced chip-making processes and its ability to generate record revenues. The robust revenue generation capability allows the company to continue its R&D investment and keep its strategic edge up and running. Over the past 10 years Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has grown its top line by 14% and its bottom line by 17%.
During the past month, the company achieved a new monthly record revenue of $8 billion, marking a 45% increase year-over-year. Quarterly, the FQ2 was also a success. Net revenue of the company grew 32.8% year-over-year to reach $20.82 billion, ahead of its guidance of $20.4 billion. More than two-thirds of the company’s revenue grew on the back of its advanced chip manufacturing processes.
In addition to the revenue, the gross margin was also above quarterly guidance and was recorded to be 53.2%. Looking ahead the company expects its gross margin to expand between 53.5% to 55.5% indicating strong pricing power and growing demand.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) has increased its capital expenditure lower-end forecast from $28 billion to $30 billion for the year. However, management has ensured that higher CapEx has always correlated with higher growth opportunities for the upcoming years.
TSM is an attractive investment opportunity for growth investors. It is trading at a slight premium of 10% to its sector, however, its earnings are expected to grow by 34% during the year to reach $1.94. Moreover, the stock was held by 156 hedge funds in Q2 2024, with total stakes worth $21.27 billion. Fisher Asset Management is the top shareholder of the company with position worth $4.93 billion.
Cooper Investors Global Equities Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Unsurprisingly the portfolio’s best performers in the very short term reflect this pattern, having narrowed to those most obviously exposed to the AI story – Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Alphabet. While the portfolio has owned semiconductor companies for years it remains diversified and is underweight the group from an active risk perspective, dragging on relative performance in the last six months. The portfolio is currently positioned to take advantage of the Value Latency we see in smaller sized companies, and the performance of the quarter has been more aligned with those factors.
While this positioning is painful in the short-term, we see considerable embedded value in our portfolio. We also see considerable risks and uncertainties existing in the AI theme that are not reflected in the Value Latency on offer in many stocks that have surged.
Returning to the AI story, today the portfolio has around 10% of capital invested across TSMC and Alphabet. We think TSMC has a tremendous opportunity to extract more value from the profit pool currently being enjoyed by its downstream customers.”
6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) is one of the best technology stocks to buy for the long term. It was held by 179 hedge funds in Q2 2024, with total stakes worth $53.67 billion. Citadel Investment Group is the largest shareholder of the company with a position worth $18.35 billion.
It is renowned for designing and manufacturing Graphics Processing Units (GPUs) and hardware for powering artificial intelligence applications. The technologies manufactured by the company are used in gaming, automotive, and data centers.
GPUs are the specialty of NVIDIA Corporation (NASDAQ:NVDA) and give the company a strategic edge over its competitors due to its variety of applications. Initially, GPUs were mainly used for powering gaming graphics, however, their use case has gone beyond that. Today, NVIDIA Corporation’s (NASDAQ:NVDA) GPUs are being used to train AI models and have contributed greatly to its revenue.
During the fiscal first quarter of 2025, the explosive growth of AI resulted in the company’s revenue surging 262% year-over-year to reach $26 billion, well above the guidance of $24 billion. Revenue growth was boosted by exceptional Data Center performance, which grew 427% year-over-year to reach $22.6 billion.
Gross Margin was also up 13.8 base points year-over-year indicating robust profitability. Moreover, as a result, NVIDIA Corporation (NASDAQ:NVDA) posted an impressive yearly net income gain of 628% during the quarter.
Looking ahead, management remains confident in continuing the growth trend and expects the next quarter’s revenue to be $28 billion and gross margins at 74.8%. If you were to look at its past 5-year performance, you would find NVDA to be no less than exceptional. The company has grown its top line by 49%, and its bottom line by 67%, while maintaining strong liquidity by increasing its levered free cash flow by 84%.
It is trading at a premium to its sector but its earnings are expected to grow by 92% during the year to reach $0.71. 61 analysts have a strong Buy rating on NVDA, with their 12-month median price target of $142.5 presenting an upside of 15% from the current level.
Aoris International Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“If Information Technology was the dominant sector for the quarter, NVIDIA Corporation (NASDAQ:NVDA), which is the largest supplier of microprocessors used for generative AI applications, was the dominant company. NVIDIA’s share price rose by a third in the quarter and has increased by 255% so far this year. Since the beginning of 2023, its market value has risen by 8.3x, or $4.3 trillion, making NVIDIA the third largest company in the world by this measure.
As a result of the unusually strong stock price performance from NVIDIA and a few other large companies, equity markets have become increasingly concentrated. You can see this in the chart below, which shows that on 30 June, 27% of the market value of the 500 largest US companies was attributable to just five companies, more than twice the average of the last 20 years.
The composition of the Aoris International Fund will always be very different to that of the broader equity market. There will be periods, such as the most recent quarter, where this contributes to our performance lagging that of our benchmark. When it comes to NVIDIA and other AI-centric companies, rapid growth is exciting, but it makes it difficult for us to judge what is normal. Our preference is to own established leading companies where we can make a more confident, evidence-based judgement about their growth and profitability.”
5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) the maker of the famous iPhone is one the best technology stocks to buy for the long term. It was held by 184 hedge funds in the second quarter of 2024, with total stakes worth $124.18 billion. Berkshire Hathaway is the top shareholder of the company with a position worth $84.25 billion.
It is one of the largest companies by market capitalization, which is more than $3.41 trillion as of August 23, 2024. The company has been growing its revenue by 8% and its net income by 10% during the past 10 years. The Q3 2024 of Apple Inc. (NASDAQ:AAPL) was also a success story, its revenue grew 5% year-over-year to reach $85.8 billion, whereas, its earnings per share grew 11% during the same time.
The company also achieved record revenues from its Canada, Mexico, France, the UK, Germany, India, Indonesia, the Philippines, and Thailand markets. Moreover, its service revenue also improved 14% year-over-year to reach an all-time high of $24.2 billion.
Analysts are expecting its earnings to grow by 17% during the year to reach $7, while the broader market average sits at 4%. 47 analysts have a consensus Buy rating on the stock, with their median price target of $250 presenting an upside of 11% from current levels.
Analysts are expecting that investments made in AAPL will pay off big time because of artificial intelligence. Yes, the company has been using AI for a long time as we have seen Siri as its virtual assistant, however, the company is about to scale up its AI game.
Apple Inc. (NASDAQ:AAPL) has announced plans to launch its Apple intelligence in the upcoming months. Its initial features include a new interface for Siri, the ability to rewrite content in different tones, summarize emails, and other AI accessibility features. Later, the company plans to integrate ChatGPT to further enhance its Apple intelligence for iPhone users.
Here’s the catch: The launch of Apple intelligence will only work on iPhone 15 Pro and the upcoming models thereby leading to an iPhone upgrade supercycle for the company. For context, during the most recent quarter, iPhone sales accounted for around 46% of the net sales. Thus, as expected the upgrade supercycle has the potential to substantially increase the revenue of the company and subsequently boost returns for its investors.
Baron Opportunity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on[1]device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
4. Alphabet Inc. (NASDAQ:GOOGL)
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is a multinational conglomerate holding company that operates through Google Services and Google Cloud segments. It is a Magnificent Seven company and one of the best technology stocks to buy for the long term.
Alphabet Inc. (NASDAQ:GOOGL) was held by 216 hedge funds in Q2 2024 with total stakes worth $35.31 billion. Fisher Asset Management is the top shareholder of the company with position worth $8.86 billion.
The major growth engines of the company, advertising and cloud computing are growing at a steady pace. Moreover, the company is exercising its competitive edge by leveraging its AI infrastructure. During Q2 2024, its cloud segment revenue crossed the $10 billion mark for the first time and also delivered more than $1 billion in quarterly profits. Generative AI solutions for cloud customers, which are already being used by over 2 million developers resulted in record revenue for the segment.
Moreover, the Google Services segment revenue also increased 12% year-over-year to reach $73.9 billion for the quarter, driven by a 14% growth in search and other services revenue. This segment contains 6 major products that are used by more than 2 billion users monthly. Here as well Generative AI solutions proved to be detrimental in driving increased Google search volumes. CEO Sundar Pichai mentioned that despite concerns that Google might lose its search market share to OpenAI, the company’s generative AI increased user satisfaction with the results.
The competitive edge of Alphabet Inc. (NASDAQ:GOOGL) lies in the fact that it is one of the biggest digital advertisers and public cloud, leveraging AI expertise to drive significant revenue growth and profits. During the quarter the company was able to generate $23.6 billion in net income and delivered a free cash flow of $31.5 billion, indicating robust liquidity.
If we look at its 10-year performance, Alphabet Inc. (NASDAQ:GOOGL) has been growing its revenue by 18%, net income by 21%, and has improved its levered free cash flow by 22%. Analysts expect its earnings to grow by 32% during the year, while the broader market average sits at 4.2%, making it a lucrative opportunity for growth investors.
Patient Capital Opportunity Equity Strategy stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 219
Meta Platforms, Inc. (NASDAQ:META) is the owner of the world’s most engaging social media apps namely Facebook and Instagram, and two of the most commonly used messaging apps, WhatsApp and Messenger. The company is now eyeing to become a leader in AI chatbots. The stock was held by 219 hedge funds during Q2 2024, with total stakes worth $42.54 billion. Citadel Investment Group is the top shareholder of the company, with a position worth $6.27 billion.
Meta Platforms, Inc. (NASDAQ:META) has proved to be a leading technology company through its decade-long history of generating record revenues. Over the past 10 years the company has grown its top line by 31%, its bottom line by 36% and its levered free cash flow by 26%.
Much like its historic growth, the company continued to deliver robust growth during the most recent quarter i.e. Q2 2024. Its revenue grew 22% year-over-year to reach $39.1 billion. Management believes that two main factors drive revenue for the company. Number one is its ability to deliver an engaging experience and the second is its effective monetization of the engagement. And the quarterly results show that the company performed well in both the indicators.
The advertisement revenue was also up 22% year-over-year to reach $38.3 billion. On the other hand, even after being in business for a long time, Meta Platforms, Inc. (NASDAQ:META) still witnessed an increase in daily active users which surpassed 3.2 billion, with WhatsApp alone reaching over 100 million monthly active users.
The company is now focusing on artificial intelligence to enhance user experience and challenge the Magnificent Seven to become the most used AI assistant. The competitive edge of Meta Platforms, Inc. (NASDAQ:META) lies in the fact that AI is not one of its core businesses.
Yes, you read it right. The fact that AI is its core business and instead it generates most of the revenues from core social media platforms gives the company leverage to work on its AI large language model without the threat of losing revenue. Management has leveraged this edge to gain another strategic advantage by making its Llama model code open-source, allowing outside developers to make optimizations and improvements. Management believes open-source has the potential to improve the company’s language model much faster as compared to closed-sourced models.
In addition, Meta Platforms, Inc. (NASDAQ:META) Ray-Ban Meta Glasses and Quest 3 have become a hit sooner than expected and are contributing revenue growth to its Reality Labs division. The Reality Labs division witnessed a 27.8% year-over-year increase in revenue, amounting to $353 million during the quarter.
Based on the strong performance across the board, the net income also improved by an impressive 73% to reach more than 13 million. Moreover, the company also generated around $10.9 billion in free cash flow, giving it financial backing to invest in its AI ventures and return to its shareholders. Looking ahead, management believes next quarter revenue to be between $38.5 to $41 billion.
Polen Focus Growth Strategy stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its Q2 2024 investor letter:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: Home Depot, Meta Platforms, Inc. (NASDAQ:META), and AbbVie. Meta Platforms delivered robust results in the period, with revenue growth accelerating in the first quarter. However, revenue comparisons for Meta will become more difficult from here, and its guidance for 2Q revenue fell below market expectations. After the company’s “year of efficiency,” where it cut costs in its core business, management is now indicating another ramp-up in GenAI and metaverse spending, spurring concerns about future profit margins. Metaverse spending, by our calculations, is now over $20 billion per year with little to no expected return on the foreseeable horizon.”
2. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) started as a Windows operating system, after 40 years it is renowned for its cloud computing, Office productivity suite, gaming, advertisement, and taking significant leaps in artificial intelligence.
It is one of the best technology stocks and was held by 279 hedge funds in Q2 2024, with total stakes worth $89.07 billion. Bill & Melinda Gates Foundation Trust is the top shareholder of the company with a position worth $15.59 billion.
The fiscal Q4 2024 was a success for Microsoft Corporation (NASDAQ:MSFT). The company grew its revenue by 15% to reach $64.7 billion. Revenue growth was boosted by exceptional performance across the board. Azure and other cloud service segments was the top contender with its segment revenues growing 30% during the year.
Robust revenue growth boosted the net income to $22.0 billion, increasing 10% year-over-year. Microsoft Corporation (NASDAQ:MSFT) leverages its strategic edge of being a highly profitable company. We have already seen how its revenues and net income increased across the board. In addition, the company also improved its operating income by 24% year-over-year to reach $109.4 billion again advocating its profitability. Microsoft Corporation (NASDAQ:MSFT) also pays a dividend to its investors. It has a payout ratio of 25.40% and a 5-year growth rate of 10%.
Should you invest in Microsoft Corporation (NASDAQ:MSFT)?
We have already seen how the company posted impressive growth figures during its recent quarter. To get a long-term perspective, if you look at the past 10-year performance the company has grown its revenue by 11%, net income by 15%, and levered free cash flow by 9%. This topped with its quarterly results makes MSFT an attractive investment opportunity for growth investors.
Baron Opportunity Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is the world’s largest software and cloud computing company. Microsoft was traditionally known for its Windows and Office products, but over the last five years it has built a $135 billion run-rate cloud business, including its Azure cloud infrastructure service and its Office 365 and Dynamics 365 cloud-delivered applications. The stock contributed to performance because of continued strong operating results and investor enthusiasm regarding Microsoft’s leadership across the secular megatrends of AI and cloud computing. Recent business momentum continued to show evidence of the strength and attractiveness of Microsoft’s product portfolio among its customer set: (1) Azure OpenAI – its suite of AI services – is now used by 65% of the Fortune 100 and contributed 7% of Azure revenue (an annualized run rate of $5.2 billion); (2) GitHub Copilot – its AI code writing service – is bending the productivity curve for developers (reports of 40%- plus improvements in developer efficiency) and now has 1.8 million paid subscribers, with growth accelerating to over 35% quarter-over-quarter; and (3) Copilot Studio – its AI application service that makes it easier for anyone to build an application, automate a workflow, or create a Copilot using natural language. 30,000 organizations across every industry have used Copilot Studio to customize Copilot for Microsoft 365 or build their own, up 175% quarter-over-quarter. In the March quarter, Microsoft again reported better-than-expected financial results, highlighted by Microsoft Cloud growing 23% year-over-year, with the fastest commercial bookings in six quarters, and Azure accelerating to 31% constant currency growth, up from 28% in the previous quarter. June quarter guidance came in-line with consensus, but the company provided higher guidance for the most important segment, Intelligent Cloud, on the back of continued strong trends across Azure and Azure OpenAI. We remain confident that Microsoft is one of the best-positioned companies across the overlapping software, cloud computing, and AI landscapes.”
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 308
Amazon.com, Inc. (NASDAQ:AMZN) started as an online bookstore. Today it has grown to become a $1.85 trillion company and is recognized as one of the largest online retailers, has operations in cloud computing, and digital streaming, and is also investing heavily in artificial intelligence.
AMZN is the best technology stock to buy for the long term, we say this because it was held by 308 hedge funds in Q2 2024, with total stakes worth $65.85 billion. Fisher Asset Management is the top shareholder of the company, with a position worth $8.46 billion.
Amazon.com, Inc. (NASDAQ:AMZN) reported a significant increase in revenue and operating income during its latest quarter. Its top line reached $148 billion after increasing 11% year-over-year. Revenue growth was driven by a strong performance in its AWS division, which grew 18.8% to reach $26.3 billion.
Amazon.com, Inc. (NASDAQ:AMZN) enjoys the benefit of repeat spending from its subscription-based services, thereby providing it with significant operating income. During Q2 2024, its operating income soared 91% year-over-year to reach 14.7 billion, out of which $9.3 billion came from its AWS operations.
The stock did take a hit with the market indexes falling in 2022, however, since then it has continued to improve and the stock hit all-time highs this year. Management’s effort to significantly improve inventory management has resulted in the company making record-free cash flow. Amazon.com, Inc. (NASDAQ:AMZN) free cash flow was up 572% year-over-year and was recorded to be more than $52.9 billion during the quarter. This strong cash generation can be profitable for both the company as it can invest in its AI development and for investors as they will get increased returns.
Over the past decade, the company has grown its revenue and net income by 22% and 73% indicating robust financials and long term growth opportunities from its recurring revenues.
Diamond Hill Select Strategy stated the following regarding Amazon.com, Inc. (NASDAQ:AMZN) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon.com, Inc. (NASDAQ:AMZN), Texas Instruments and Mr. Cooper Group. Internet retail and cloud infrastructure company Amazon is benefiting from strong profitability, particularly in its Amazon Web Services (AWS) business. Shares also received a boost amid growing optimism around the demand for AWS as Amazon customers’ investments in generative AI projects continue growing.”
While we acknowledge the potential of Amazon.com, Inc. (NASDAQ:AMZN) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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