Stocks are one of the best wealth-building tools, and with the new year approaching, there’s no better time to put some money to work.
Whether you are new to stocks or a veteran looking for new investment ideas, here are three tech stocks I would easily buy today.
Microsoft (NASDAQ: MSFT) has delivered a stellar return of 280% over the last five years, but the company’s growth opportunities in cloud services should pave the way for further profit.
Microsoft continues to experience double-digit revenue growth with impressive results from its intelligent cloud segment, which has become the largest company for the software giant. The main driver here is Microsoft Azure, where revenue grew 48% year over year in the most recent quarter.
Azure continues to bring in new customers from large companies that increasingly rely on cloud computing to securely manage Internet of Things devices, build cloud-based applications and process data using artificial intelligence, among other things.
Elsewhere, Microsoft’s consumer products continue to thrive. The number of monthly active devices running Windows 10 grew double-digit year over year in the fiscal first quarter. Revenues from gaming, Xbox content and services are up 30% year over year ahead of the November launch of the Xbox Series X / S game console. The gaming segment accounted for only 8% of total revenue in fiscal 2020, but the Xbox business could grow significantly over the next decade based on the outlook for the Xbox Game Pass subscription service, which already has 15 million members.
Microsoft is a highly profitable company and has an enviable position as a software-as-a-service provider. At a price-free cash flow ratio (P / FCF) of 33, the stock is not too expensive relative to Microsoft’s underlying growth and should deliver satisfactory returns for many years.
Amazon (NASDAQ: AMZN) is dominant in e-commerce, but although it is a household name at the moment, it still has a lot of growth potential. Despite years of growth, e-commerce still represents less than 15% of total retail spending.
This holiday should be the first quarter that Amazon will generate more than $ 100 billion in revenue over a three-month period. Amazon reported revenue of $ 96 billion in the third quarter, up 37% year-over-year.
More people are shopping online, capitalizing on the strengths of Amazon’s extensive selection, fast shipping and excellent customer service. According to the consensus analysts, Amazon had $ 119 billion in revenue for the fourth quarter, which is an increase of 36% year-on-year.
Amazon has seen increased engagement from Prime members lately as people take advantage of online grocery delivery from Whole Foods Market. Management also stated in the latest earnings report that international engagement with Prime Video grew 80% year over year in the third quarter, a testament to the irresistible appeal of a Prime membership.
If we value Microsoft for its growth prospects in cloud services, we should love Amazon even more as Amazon Web Services holds the # 1 position in the cloud infrastructure services market and represents most of Amazon’s operating profit.
Amazon is more expensive than Microsoft and trades at a P / FCF ratio of 64, but Amazon is growing much faster and is still growing for a long time. Amazon is one of my biggest interests, and I would be happy to add more shares at current price levels.
Unity software (NYSE: U) is the backbone of many top video games created for mobile, console and PC. It is the leading platform for creating and using interactive real-time 3D content, and it is growing rapidly, with sales of 53% year over year in the third quarter.
The stock just completed its IPO in September and is already up 127%. It is a high flyer that can be volatile in the short term, which is sometimes on par with growth stocks, but there are good reasons why investors are so optimistic.
An investment in Unity stock is, in part, a bet on the $ 175 billion video game industry’s continued growth, but it’s also a play on the widespread use of software to design and create products across the economy. In addition to assisting game makers, Unity’s platform is also used by filmmakers, industrial designers, artists, architects and other professionals.
The company estimates that the addressable market for its platform is currently around $ 29 billion. But the exciting thing about Unity is that its management sees potential for more use cases than what the platform currently serves. Some of these new use cases include autonomous driving simulation and augmented reality applications.
The main benefit Unity brings to customers is similar to what drives the growth of Microsoft’s cloud business – a cost-effective and time-saving solution when compared to alternatives. For example, with Unity, game creators only need to create a game once before they can launch it on different platforms such as PC, Nintendo Switch, Xbox, PlayStation, mobile and virtual reality.
Unity also offers solutions to help game creators monetize their content through in-game purchases and advertising, adding more and more video game companies to their revenue.
While the growth potential is enormous, investors may only want to start a small position in the stocks at this point. Unit is richly valued with a market value of $ 42 billion. That’s a steep valuation of 48 times the trailing 12-month revenue of $ 674 million. However, the company’s growth should justify that valuation over time, but keep in mind that stocks can be bumpy in the short term.