Year-to-date, the information technology sector has risen by 30%. Yet despite those solid gains, the sector could gain more led by leading tech stocks to buy now.
The bullish thesis for technology is a straightforward one. After earnings declined in 2023, the sector’s earnings have rebounded sharply over the past two quarters. Analysts expect the growth to continue in Q2 earnings. According to FactSet Earnings Insights, analysts expect 16.1% year-over-year (YOY) growth for the overall sector.
On that note, several additional catalysts will drive earnings higher for the following tech stocks to buy now. Firstly, we are in the midst of an AI revolution and companies are investing heavily in the technology. As a result, these companies are profiting as demand grows for their AI infrastructure, products and services.
Secondly, spending is accelerating, especially in critical areas like chip manufacturing, digitization, cloud computing and digital advertising. Most enterprises are past the cost optimization phase. This means reaccelerating IT spending will boost revenues and profits for the following companies.
Microsoft (MSFT)
In the AI era, Microsoft (NASDAQ:MSFT) should be one of the first tech stocks to buy now, given its leadership in the space. A game-changing partnership with OpenAI and massive investments in AI infrastructure has positioned it for success.
Microsoft is leading the way in AI infrastructure. Due to its strategic partnership with OpenAI, it offers the best frontier and open-source models. By the end of Q3 fiscal year 2024, over 65% of Fortune 500 companies were using its Azure OpenAI Service. Furthermore, its Models as a Service offering enables developers to use small language models (SLMs) and large language models (LLMs) without needing to manage the underlying infrastructure.
The software giant has also infused AI into its applications, ranging from GitHub to Microsoft 365. Its range of Copilots is bending the productivity curve, resulting in significant revenue acceleration. For instance, developers using GitHub Copilot see improved code quality and higher productivity. As a result, GitHub now has 1.8 million subscribers, and growth accelerated by 35% quarter-over-quarter in Q3 FY2024.
With these AI tailwinds, Microsoft remains one of the top tech stocks to buy now. Analysts have 47 buy and no sell ratings, highlighting the consensus bullish view. Undoubtedly, the software giant is a leader in AI and will continue to thrive.
AppLovin (APP)
AppLovin (NASDAQ:APP) provides a platform that enables developers to monetize and market their mobile applications through its proprietary targeting engine. This company is a critical cog in monetizing the free-to-play gaming ecosystem. In the past, it has had tremendous success utilizing contextual data for ad matching. With AI, the addressable market and growth opportunities have expanded significantly.
With AI, AppLovin is improving its targeting, enabling it to serve more relevant ads with higher click-through rates. Its targeting engine continues to improve, opening up a huge opportunity with e-commerce advertisers. Furthermore, the company will leverage its capabilities to offer performance-based advertising on connected TVs.
Considering the long-term growth in Connected TV advertising, AppLovin is among the top tech stocks to buy now. After growing revenues by 16% in fiscal year 2023, revenues have been accelerating. In Q1 2024, revenues grew by 47% YOY, driven by improvements in its AI-powered advertising recommendation engine, AXON.
Lastly, its software platform is showing incredible operating leverage. Software revenues increased from $355 to $678 million in Q1 2024, with $273 million of added revenue, or 84%, flowing to adjusted EBITDA. APP stock will soar as web-based marketing, CTV, and e-commerce advertising expand.
ACM Research (ACMR)
This maker of single-wafer cleaning equipment used in chip manufacturing is one of the best tech stocks to buy now. ACM Research (NASDAQ:ACMR) will experience a multi-year tailwind as China aims to achieve self-sufficiency in chip production.
In the face of U.S. sanctions, the Chinese government has set a goal of semiconductor self-sufficiency. In that vein, it spent $21 billion in 2023 on wafer fabrication equipment for mature logic. Bernstein analysts estimate it must maintain the same level of spending for four more years to reach self-sufficiency.
These investment drivers have been a positive for ACM’s topline. After growing revenues by 43% in 2023, analysts expect continued strength, with consensus estimates projecting 26% growth in 2024. Although it’s headquartered in California, ACM Research generates most of its revenues in China through its subsidiary ACM Shanghai, which has an 82.1% ownership stake.
ACM Shanghai is well-positioned to benefit from the self-sufficiency and localization initiatives. Moreover, there is significant value in ACM Shanghai, publicly traded in Shanghai. As of this writing, the subsidiary is valued at almost twice the valuation of ACM Research. Management could unlock significant value for shareholders through primary or secondary stock sales.
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.
