After the impressive rally in the first half, investors are wondering whether technology stocks have staying power. Most likely they do. Thanks to tailwinds such as artificial intelligence, there are still tech stocks to buy.
In the short term, the market rally is extended, especially in technology. However, looking ahead to year-end, several tailwinds can propel the market higher. Inflation is cooling, and the Federal Reserve (the Fed) might soon signal the end of rate hikes. Such a shift in monetary policy might catalyze the next leg up in high growth tech stocks. Estimates might also have troughed after earning declines in the fourth quarter of 2022 and the first quarter of 2023. According to RBC Wealth Management, technology earnings growth will exceed other sectors.
Advances in artificial intelligence (AI), cyber threats and electric vehicles will deliver growth for select tech stocks to buy. These stocks will continue to march higher. Already they had great results last quarter and the fundamental momentum will continue.
Oracle (ORCL)
In the cloud computing race, Oracle (NYSE:ORCL) has been a laggard behind Amazon’s (NASDAQ:AMZN) AWS and Microsoft’s (NASDAQ:MSFT) Azure. It was a late entrant into the Infrastructure as a Service (IaaS) space and was losing market share to the two for a while. However, the company seems to be getting its mojo back.
The strength in its cloud applications and infrastructure businesses was evident in Q4 fiscal year and FY 2023 results. Total revenues for the quarter were up 18% year-over-year (YOY) in constant currency. Coming off such impressive earnings, ORCL stock saw a torrent of upgrades from analysts. Goldman upgraded the stock to “neutral,” citing accelerating IaaS revenue growth. Additionally, they opined that Oracle might be enjoying an advantage over hyperscalers in cloud infrastructure services.
Management highlighted that Oracle Cloud Infrastructure (OCI) is the best GPU cluster technology. According to Oracle’s Chairman and Chief Technology Officer, Larry Ellison, their Gen2 Cloud has the highest performance and lowest cost.
Already, Nvidia (NASDAQ:NVDA) is using the Gen2 Cloud for its AI infrastructure. Additionally, companies like Cohere, MosaicML and others have agreed to buy more than $2 billion of OCI capacity.
The firm is also experiencing accelerating revenues in its cloud applications business – and it’s leveraging AI to beat the competition. Recently, it introduced AI into its human resource software to improve productivity and processes.
Notably, Oracle will benefit from the adoption of AI. Its OCI services are in huge demand. Yet Oracle trades at a significant discount to other IaaS companies. Both Microsoft and Amazon trade at over 30 times forward earnings. Oracle is among the bargain tech stocks to buy at a forward price-to-earnings (P/E) of 21.
Axcelis Technologies (ACLS)
With all the talk about semiconductor demand soaring, Axcelis Technologies (NASDAQ:ACLS) will be a winner. McKinsey calls it “The semiconductor decade” and projects a decade of growth with the industry becoming a trillion-dollar industry by 2030.
Axcelis Technologies is a global leader in developing and manufacturing ion implant systems. It has been serving this market for over 45 years. The implant market TAM is growing fast, fueled by electrical vehicle adoption. Going forward, the company is well-positioned to benefit. It’s a leader with diverse implant products for specialty device market segments. These tailwinds qualify Axcelis into the high growth tech stocks to buy category.
Ion implantation equipment and services have been in demand and have helped the stock soar. ACLS stock is up over 700% in the last five years, handily beating the VanEck Semiconductor ETF’s (NASDAQ:SMH) 198% return. The market has rewarded the stock for impressive growth. Revenues were up 38%, 39% and 38% in 2020, 2021 and 2022, respectively.
Although there are fears that the semiconductor downturn might persist, management expects to grow through the cycle. The Purion Power Series is gaining traction in the SiC market and will be the main growth driver. In the second quarter, the company announced multiple shipments of these systems to customers worldwide.
With the SiC market growing at a 30% CAGR due to vehicle electrification, Axcelis is poised for more growth. As of this writing, the stock trades at a 27 forward P/E which seems rich. However, its history of solid growth warrants a premium to the industry.
Palo Alto Networks (PANW)
On July 12, cybersecurity stocks sold off after Microsoft announced its entry into the Security Service Edge (SSE) market. Palo Alto Networks (NASDAQ:PANW) sold off -7%. However, sellers are mistaken and PANW stock is among the tech stocks to buy.
First, according to CEO Nikesh Arora’s interview on CNBC, Microsoft’s entry validates the SSE market. And the cybersecurity TAM is expanding as cyber threats increase and become more sophisticated.
Secondly, Microsoft isn’t just going to dislodge Palo Alto anytime soon. Palo Alto’s breadth of solutions is much deeper, covering multiple areas. Bank of America agrees and views the threat as manageable. According to analyst Tal Liani Microsoft’s solution lacks “certain key network security components like Browser Isolation, Advanced Threat Analysis and others, that make this solution currently only suitable for a certain sub-set of applications.”
Besides, Palo Alto has already captured most Fortune 500 companies, having been in the space for over five years. Typically, switching costs are high. Thus customers are likely to stick with Palo Alto, which has the better solution.
Moreover, the recent inclusion in the S&P 500 index will drive the stock higher. After the addition, share demand will increase as money managers previously restricted by mandates seek exposure to high growth tech stocks to buy. The stock rallied on the news from $200 to $250. But the move isn’t done, more buying will happen.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
