The technology sector has been doing well recently, and ASML, Datadog, and ServiceNow should continue to do well in the future.
Tech stocks are hot right now. S&P 500 is nearing an all-time high, with mega-cap tech stocks dominating the index. Nasdaq 100 Technology Sector Index We're just days away from all-time highs, so any way you look at it, it's a good time to be a tech investor.
However, this hype won't last forever, and a decline in tech stocks is inevitable at some point. That's why it's a smart strategy to identify the strongest companies in the sector and put your investment capital there. Every stock will eventually fall, but the stronger the underlying business, the quicker it should recover. With that in mind, here are three tech stocks you can buy without hesitation.
ASML
Dutch manufacturer ASML (ASML 2.13%) ASML makes the lithography machines needed to make semiconductor chips. These machines cost hundreds of millions of dollars each and are the size of a large shipping container. Cutting-edge chip manufacturing requires extreme ultraviolet lithography machines, and ASML is the only company in the world that can supply them.
In the first quarter, ASML's revenue fell 22% year over year to €5.3 billion. While such a revenue decline may be a concern for some, the semiconductor industry is still in a cyclical downturn (despite the flurry of artificial intelligence news), and the earnings results were in line with expectations for ASML.
Importantly, ASML continues to invest heavily during the industry downcycle to prepare for when the cycle turns upward again, and management sees 2024 as a transition year, with the company expecting a return to growth in 2025.
Datadog
Business software company Datadog (D.D.O.G. 0.54%) It enables businesses to keep track of their computer systems, applications, and cloud services to ensure they are running smoothly – through a unified platform that eliminates the traditional silos that separate different aspects of monitoring from one another.
The importance of this type of software may not be immediately obvious to investors who don't work in fields that require it, but Datadog's results tell a clear story: First-quarter revenue increased 27% year over year, the bottom line improved from a loss of $0.08 per share to a profit of $0.12 per share, and the company generated $187 million in free cash flow.
Investors should keep an eye on Datadog's customer metrics: The number of customers with over $100,000 in annual recurring revenue (ARR) grew 15% quarterly, and nearly half of customers are currently using four or more products. As these metrics grow, profitability should follow, because it takes less capital to increase spending among existing customers than it does to acquire new ones.
Service Now
Service Now (now 2.06%) The company sells software to enterprise customers that helps them manage information technology, human resources, customer service management, and more. Like Datadog, these products are not consumer-facing, so their value and importance is often overlooked. But again, the company's performance should help investors understand just how important these products are.
What stands out about ServiceNow is how impressive the company has been over the long term: Consider its revenue, net income, and free cash flow over the past five years.
NOW Revenue (TTM) data from YCharts.
Management expects this growth to continue. In its first-quarter earnings report, the company raised the low end of its full-year revenue outlook, now expecting growth of about 22%. It predicts a free cash flow margin of 31%. ServiceNow has been one of the best tech stocks of the past decade, and its consistency shows no signs of growth slowing in the near future.
Jeff Santoro has invested in ASML, Datadog and ServiceNow. The Motley Fool has invested in and recommends ASML, Datadog and ServiceNow. The Motley Fool has a disclosure policy.
