Here are three tech stocks that should definitely be on your buy list.
In just 50 years or so, technology has advanced exponentially, evolving from the large mainframe computers of the 1970s to the internet-connected smartphones of the 2020s. Fortunately, these advancements still have a long way to go. Artificial intelligence (AI), digitalization, and cloud computing represent the future of how we work and communicate, and businesses are jumping on these long-term trends.
Investors looking for investment ideas should turn to the technology sector, where many solid growth stocks can be found. A wide range of businesses are benefiting from this digitalization, which should lead to a surge in demand for products, services and solutions. Holding such stocks for the long term means riding this trend and enjoying attractive capital gains, which can help you prepare for retirement.
Here are three stocks you can buy to ride this tech wave.
Image source: Getty Images.
Microsoft
Microsoft (MSFT 0.43%) Microsoft is a technology giant with a market capitalization of over $3 trillion. The company sells and markets the Microsoft 365 suite of software applications and owns the business networking site LinkedIn. Investors might be surprised to learn that despite its massive size, the business is still growing steadily. From fiscal 2021 (the company's fiscal year ends on June 30) to fiscal 2023, total revenues jumped from $168.1 billion to $211.9 billion. Net income grew from $61.3 billion to $72.4 billion during the same period. The software giant also generated free cash flow, averaging about $60.2 billion over the three fiscal years. Microsoft's dividend history is also stellar, with the company raising its quarterly dividend every year since fiscal 2010. Its most recent quarterly dividend was $0.75, up from $0.68 the year before.
The company's momentum continues in the first nine months of fiscal 2025. Revenue grew about 16% year-over-year to $180.4 billion, while operating income grew about 27% year-over-year to $81.5 billion. Net income for the nine months was $66.1 billion, up 26% year-over-year. Microsoft continues its tradition of generating large amounts of free cash flow, generating $50.7 billion for the nine months, up 28% year-over-year. The Redmond-based company has been making acquisitions and collaborations to continue growing its business. In 2019, Microsoft and OpenAI partnered to build a supercomputing platform for the company's cloud service, Microsoft Azure. A few years later, in 2022, Microsoft acquired Activision Blizzard for $68.7 billion, looking to expand its gaming division. Most recently, the company invested $1.5 billion in United Arab Emirates-based artificial intelligence company G42, in an effort to make the country a global AI hub. Microsoft also announced an expanded strategic partnership with digital workflow management company ServiceNow to develop generative AI capabilities. Last month, the software giant inked a deal with Japanese electronics manufacturer Hitachi to leverage generative AI to create innovative business solutions. These business development efforts should pave the way for Microsoft to continue to expand its presence and dominance in the technology world.
Broadcom
Broadcom (AVGO 1.68%) helps design and develop a variety of semiconductors, enterprise software, and security solutions. The company is riding the surge in AI demand, which should lead to business expansion for a variety of solutions. Broadcom's financial position is strong, with revenue growing from $27.5 billion in fiscal 2021 (ending October) to $35.8 billion in fiscal 2023. Net income is even stronger, more than doubling from $6.4 billion to $14.1 billion in the same period. The company also steadily increased its free cash flow, from $13.3 billion in fiscal 2021 to $17.6 billion in fiscal 2023. Annual dividends are $1.84 per share, up 12% from $1.64 a year ago.
Broadcom reported continued revenue growth in the first half of fiscal 2024, but net income was impacted by higher research and development and restructuring costs. Revenue for the first half rose 38% year over year to $24.4 billion, but net income fell by more than half to $3.4 billion. The company completed its acquisition of enterprise software company VMWare in November 2023 for approximately $61 billion, and the figure reflects the combined performance of both businesses. The company declared a quarterly dividend of $0.525 per share, bringing the annual dividend to $2.10 per share, up 14% year over year. Management is confident about the future and has raised its fiscal 2024 revenue outlook to $51 billion, nearly 43% higher than reported in fiscal 2023. With the widespread adoption of generative AI and the need for enterprise solutions and more complex semiconductors, Broadcom is well positioned to benefit in the coming years.
Applied Materials
Applied Materials (AMAT -1.71%) Applied Materials manufactures and supplies wafer fabrication equipment and software used to make microchips for smartphones, televisions and flat-panel displays. The company is continually improving its equipment to enable more efficient computing and is poised to ride the trend toward more complex semiconductor chips. Applied Materials' financial numbers have been strong for many years and are expected to continue to improve as demand for its equipment increases. Revenues grew from $23.1 billion to $26.5 billion from fiscal 2021 (ended Oct. 31) through fiscal 2023. Net income grew from $5.9 billion to $6.9 billion during the same period, and the business generated positive free cash flow in all three years. Applied Materials has also been growing its quarterly dividends at an impressive pace since fiscal 2017, with dividends projected to increase 23% and 25% year-over-year to $0.32 and $0.40 per share in fiscal 2023 and 2024, respectively.
Applied Materials continued to post strong results in the first half of fiscal 2024. Revenue was flat year-over-year at $13.3 billion, while net income increased 14% year-over-year to $3.7 billion. The company continues to generate positive free cash flow in the first half of fiscal 2024, and management issued strong guidance for the third quarter. The company expects revenue to be approximately $6.65 billion, beating analysts' expectations of $6.58 billion. Adjusted net income per share is expected to be in the range of $1.83 to $2.19, at the high end of analysts' expectations of $1.98. Management has identified catalysts that will drive the company's performance moving forward, and the business is poised for further growth. The semiconductor device market grew 15% year-over-year in the first quarter of 2024 as cloud service providers announced ambitious capital expenditure plans. The company also announced its intention to double its manufacturing capacity, employee numbers, and research activities in Singapore over the next few years. Applied Materials also recently announced innovations in chip interconnects that firmly position it at the forefront of groundbreaking research: the company is using ruthenium for the first time in mass production to enable more efficient production of 2-nanometer chips, while the company's new enhanced dielectric material, Black Diamond, helps strengthen chips for 3D stacking and has been adopted by major logic and dynamic RAM chipmakers.With healthy sector tailwinds and a strong focus on research to improve its technological edge, Applied Materials is a stock poised to deliver healthy growth for years to come.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Applied Materials and Microsoft. The Motley Fool recommends Broadcom and recommends buying Microsoft's January 2026 $395 calls and selling Microsoft's January 2026 $405 calls. The Motley Fool has a disclosure policy.
