We recently published a list of 10 Most Profitable Tech Stocks to Buy Now. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against other most profitable tech stocks to buy now.
Profitability remains one of the most sought-after traits in the technology sector, yet it is also one of the most complex. It is shaped by a delicate balance of investment cycles, competition, and market perception. While topline growth often takes center stage—driving valuations and attracting top talent—sustained profitability becomes crucial as industries mature, competition peaks, and new investments become necessary for survival. In this ever-evolving landscape, technology companies have mastered the art of balancing revenue expansion with profit growth by diversifying their businesses, building vast customer ecosystems, and continuously enhancing product experiences.
Looking ahead, earnings growth will take on an even greater role in determining valuations, particularly as the breakneck pace of growth begins to slow. Investors will increasingly focus on sustainable profitability rather than just rapid growth. In a January 2024 article, Rob Haworth, Senior Investment Strategy Director at U.S. Bank Asset Management, emphasized that technology companies possess strong earnings growth potential, largely independent of traditional business cycles. He explained:
“What is not clear yet is how companies investing in AI as a way to increase efficiencies or monetize services for end users will benefit from these advancements. We’re in a consolidation phase to figure out what revenue growth will be going forward. If AI helps boost productivity, that will support not only current rising stock valuations but individual prosperity as well.”
Franklin Templeton’s 2025 Technology Outlook echoes this sentiment, predicting another year of strong growth in the sector. The report notes that the “Magnificent Seven”—a group of leading tech giants—delivered exceptional earnings in 2024, outpacing both the broader market and the tech industry itself. While these companies are expected to maintain strong momentum, The firm anticipates that the rest of the sector may start catching up in 2025.
Tech investments are projected to grow exponentially in the coming years, reshaping the profitability landscape. Emerging technologies such as artificial intelligence, quantum computing, and autonomous systems present both immense opportunities and significant challenges. Some companies will achieve sustainable profit margins through strategic pricing and ecosystem advantages, while others will struggle under the weight of fierce competition and heavy reinvestment costs. For investors and stakeholders, understanding these shifting dynamics is key to navigating the ever-changing tech sector.
Our Methodology
To identify the 10 most profitable stocks, we conducted extensive research on U.S.-listed technology and tech-adjacent companies with a market capitalization of at least $2 billion. Rather than relying solely on absolute net income, we refined our selection criteria by focusing on companies with both an operating margin and net profit margin exceeding 20%. This approach ensures that high-margin firms are not overshadowed by larger corporations with higher overall earnings. After applying these filters, we ranked the stocks in ascending order based on their trailing twelve-month net income, with the company reporting the highest net income securing the top position.
Note: All pricing data is as of market close on February 14.
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A close-up of a customer using the company’s e-commerce platform whilst shopping online.
PDD Holdings Inc. (NASDAQ:PDD)
TTM Net Income: $15.0 billion
Number of hedge funds: 78
PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group that owns and operates a portfolio of businesses. Its major e-commerce offerings are Pinduoduo platform and the Temu platform. The company commands operating and net profit margin of around 28%.
In their Q4 2024 investor letter, the investment management company GreenWood Investors highlighted PDD Holdings (NASDAQ:PDD) as their key investment, emphasizing its significant growth potential. They note that PDD Holdings has effectively leveraged its unique business model to capture a substantial share of the Chinese e-commerce market. GreenWood Investors are optimistic about PDD Holdings’ prospects, citing its innovative approach and strong market position as drivers for continued success. They mention:
“As PDD Holdings looks set to create a second Amazon with its international site Temu, we are highly attracted to the opportunity. Sales are growing 4x faster than Amazon’s, yet shares are priced at less than a quarter of the Amazon earnings multiple. PDD is a perfect example of why we want to look outside of the “Big Ten” companies that are nearly a third of global market indices.”
Tiger Global Management in its latest 13-F filings disclosed a new $254 million position in PDD Holdings (NASDAQ:PDD) as of December 31, 2024.
Despite growing competition, PDD Holdings (NASDAQ:PDD) reported impressive financial results for Q3 2024, with revenue surging 44% year-over-year to $14.2 billion. The company also demonstrated strong cost management, as its net profit margin expanded by 290 basis points to 27%. To drive long-term growth, PDD Holdings is ramping up investments in its platform and supply chain ecosystem. These strategic efforts aim to enhance its market position, lower transaction costs for merchants, and support various regions, ultimately contributing to sustained earnings growth.
Overall, PDD ranks 7th on our list of most profitable tech stocks to buy now. While we acknowledge the potential of PDD to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PDD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
