This article presents an overview of the 5 Best Tech Stocks for the Next 5 Years. For a detailed overview of such stocks, read our article, 10 Best Tech Stocks for the Next 5 Years.
5. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)
Number of Hedge Fund Investors: 107
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks fifth in our list of the best tech stocks to buy for the next five years. UBS believes Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) has a “world-leading dominance in the semiconductor foundry industry.” UBS also thinks Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) can tap into IoT and AI.
Over the past one year Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) shares have gained about 20%. As of the end of the third quarter of 2023, 107 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM). The most notable hedge fund stakeholder of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) was Ken Fisher’s Fisher Asset Management which owns a $2.6 billion stake in Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM).
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its fourth quarter 2023 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was also a top contributor to performance. The Company began shipping chips that were fabricated using its industry-leading “N3″ node. Nearly all of the Company’s N3 capacity has been filled by high-end chip designers such as Apple, NVIDIA and even Intel. As high-performance computing, particularly related to AI in both data centers and edge devices, continues to build momentum, the Company will be a key supplier for many years to come. Despite the boom-and-bust cycle in demand seen for many semiconductors during Covid-19 and post-Covid-19, the Company should be able to post solid double-digit growth next year as inventories and end-market demand across most of its technology nodes get back to normal levels. The Company also maintains dominant market share in leading-edge nodes, which is in short supply, given the difficulties its competitors have had in scaling up EUV-based manufacturing. The Company has been able to secure higher prices because of this and can still generate excellent returns on elevated capital expenditures necessary for this scarce capacity. The Company is arguably one of a handful of the world’s most important and largest companies, but because the Company’s shares trade as an ADR (American Depositary Receipt) the shares are not part of the major stock market indices in the U.S. As a result, the shares are woefully under owned by U.S. investors (institutional and individual), particularly for a company that regularly generates cash flow return on invested capital in excess of +40%. Therefore, our growing position in these shares represent a significantly relatively overweight portfolio position versus our peers and benchmarks. We could not be more pleased by this anachronistic institutional imperative.”
4. Adobe Inc (NASDAQ:ADBE)
Number of Hedge Fund Investors: 112
Adobe Inc (NASDAQ:ADBE) ranks fourth in our list of the best technology stocks to buy for the next five years according to UBS. UBS likes the stock due to brand image and pricing power. UBS said Adobe’s launch of its generative AI model Firefly will help it with growth. The analyst firm is also bullish on Adobe Inc’s (NASDAQ:ADBE) transition to a subscription model.
As of the end of the third quarter of 2023, 112 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Adobe Inc (NASDAQ:ADBE).
Here is what Polen Global Growth has to say about Adobe Inc. (NASDAQ:ADBE) in its Q3 2023 investor letter:
“Both Alphabet and Adobe’s businesses continue to perform well. With respect to Adobe, the most recent quarter delivered more of the same with constant currency revenue growing 13%, margin expansion, and over 2% of shares outstanding repurchased for non-GAAP earnings growth of over 20%. We believe its approach to GenAI through Firefly, which guarantees safe content because it trains on Adobe Stock, will continue to be attractive to enterprises. The counter to GenAI, and something we are keeping an eye on with Alphabet and Adobe, is that it requires heavy investment. While both businesses can leverage their scale and manage costs in other areas, we expect the investment in future growth through GenAI will weigh on company-wide margins over the near term.”
3. Salesforce Inc (NYSE:CRM)
Number of Hedge Fund Investors: 122
CRM company Salesforce Inc (NYSE:CRM) is one of the top tech stocks to buy for the next five years according to UBS. UBS thinks Salesforce Inc (NYSE:CRM) will continue to benefit from modest margin expansion, taking opportunities to upsell to its customer base.
Earlier this month, Baird analyst Rob Oliver said in a report that Salesforce Inc (NYSE:CRM) has an “attractive” risk-reward profile” heading into 2024 as front office spending will be better than expected.
“While macro continues to pressure seat-based software, we could potentially see upside from: price increases; potential return of front office spending, and crisper sales execution,” Oliver said.
Polen Focus Growth Strategy stated the following regarding Salesforce, Inc. (NYSE:CRM) in its fourth quarter 2023 investor letter:
“In the fourth quarter, the top relative and absolute contributors to the Portfolio’s performance were Netflix, ServiceNow, and Salesforce, Inc. (NYSE:CRM).
Salesforce has continued to grow its revenues at what we see as a healthy rate despite market concerns about the impact of the weaker macroeconomy on its business and penetration rates in its core CRM offering. Even its most mature and largest offerings, Sales Cloud and Service Cloud, are still growing revenue at double-digit rates. In addition, management realized that their cost structure, especially in salespeople, had gotten too bloated. Over the past year and a half, the company has run a much more streamlined expense structure that has led to strong operating margin expansion and earnings growth. Importantly, we do not feel Salesforce has cut into its innovation or sales muscle through these cost cuts but has eliminated unnecessary excess fat from the organization.”
2. Meta Platforms Inc (NASDAQ:META)
Number of Hedge Fund Investors: 234
Meta Platforms Inc (NASDAQ:META) made it to UBS’s top tech enablement stocks to buy for the next five years because the investment firm is bullish on the advertisement strengths of the social media company.
As of the end of the third quarter of 2023, 234 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Meta Platforms Inc (NASDAQ:META). The biggest stakeholder of Meta Platforms Inc (NASDAQ:META) was Catherine D. Wood’s ARK Investment Management which owns an $110 million stake in Meta Platforms Inc (NASDAQ:META).
Wedgewood Partners stated the following regarding Meta Platforms, Inc. (NASDAQ:META) in its fourth quarter 2023 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) was a leading contributor to performance for the quarter – and the year. Core advertising revenue growth accelerated to +23% while operating margin rebounded strongly from a year ago. The Company has been a consistent beneficiary of artificial intelligence (AI) over the past several years, investing aggressively in deep learning recommendation systems that help power its products, which reach nearly half the population of the planet. Meta Platform’s AI investments, combined with its massive scale, allow the Company to quickly spin up new products across its digital advertising real estate to reinforce its competitive positioning. For example, the Company’s relatively new Reels product is just over two years old, yet it has driven a +40% increase in the time Instagram users spend on the app. Reels content and other content served up to Instagram users is often driven by several very large and expensive AI recommendation systems that must sort through billions of datapoints in real time and come up with a probability of a user engagement. The Company is one of the few companies that has been able to consistently and profitably monetize AI technologies for shareholders and we continue to hold it has a top position in our portfolios.”
1. Microsoft Corp (NASDAQ:MSFT)
Number of Hedge Fund Investors: 306
UBS believes integration of AI with Bing search would help Microsoft Corp (NASDAQ:MSFT) gain market share in the search industry. UBS also believes in the next few years Microsoft Corp’s (NASDAQ:MSFT) push to monetize its AI offerings would drive “incremental” revenue growth for the company. Morgan Stanley earlier this month said over the next 12 months Microsoft Corp’s (NASDAQ:MSFT) generative AI tools would give it a boost. Morgan Stanley cited its survey of CIOs in which about 68% of CIOs said they plan to adopt Microsoft Corp’s (NASDAQ:MSFT) generative AI solutions at some point in the next year.
Morgan Stanley analyst Keith Weiss increased his price target on the stock to $450 from $415.
Polen Focus Growth Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its fourth quarter 2023 investor letter:
“The largest relative detractors in the quarter were Illumina, Airbnb, and Microsoft Corporation (NASDAQ:MSFT). Microsoft’s business continues to grow well, albeit at slower rates than in the previous few years. That said, it was a relative detractor to the Portfolio because our 7% average weighting for both the quarter and the year were significantly lower than the 12% benchmark weighting in the Russell 1000 Growth. Microsoft shares appreciated a benchmark-beating 19% in 4Q and 58% in 2023.
In addition, we also expect generative AI to help not just Microsoft’s Azure cloud service business grow, but also to be an additional growth driver for the company’s Productivity Suite (Word, Excel, PowerPoint, etc.) and Power Platform, which helps build internal apps for businesses.
Microsoft has created generative AI co-pilots, which are bots that use large language models (LLMs) to make a customer’s Microsoft software even more functional. As an example, co-pilot offerings from Microsoft can take text and data from Word and Excel and automatically create a PowerPoint presentation from it. We expect to see generative AI demand from Azure customers becoming a larger contributor to growth of that segment while Microsoft Co-pilot becomes a premium feature of the high-end Microsoft commercial bundles, leading to better pricing. Given the strength of the company’s existing businesses and the expected strong product cycle driven by generative AI advancements, we chose to add to our Microsoft position. It is now our second largest position behind Amazon.”
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