Technology is one of the most popular sectors among investors, as it should be. Technological innovation has changed the way we live our lives. It has given us medical innovation, communication like we’ve never had before, a new shopping experience, and extreme investor profits along the way.
Without technological innovation, we wouldn’t be where we are today. There’s little chance that it’s going to stop anytime soon. As technological innovation continues, new opportunities are popping up for investors every day. Here are the most attractive tech stocks to buy in 2020.
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Best Tech Stocks to Buy
1. Roku (NASDAQ: ROKU)
Five years ago, the name Roku wouldn’t have turned any heads. Today, it’s become a household name. Considering there are more than two televisions in the average American home, according to the U.S. Energy Information Administration, there’s a strong likelihood you have a Roku-enabled television in your house. In fact, the Roku operating system is what powers one out of every three smart TVs in the United States, according to Broadband News.
Roku has a stronghold on the smart-TV-operating-system market, but that’s not the only area of business in which the company has a valuable corner of the market.
One of the largest streams of revenue for Roku is advertising revenue. In the world of smart TVs and streaming entertainment, when you think of advertising income, you likely think of the ads that interrupt shows you watch online. Although Roku does make plenty of money from ads that run on The Roku Channel, that’s not the only ad income it generates.
On the Roku platform, you’ll find thousands of ad-supported entertainment channels. Every time you watch an ad on one of these channels, Roku gets a cut of that ad revenue. While it may be a small amount of money on a per-ad-run basis, when you look at the overall value of one in three smart televisions running Roku and its ad-supported partners, you find yourself looking at millions upon millions of dollars in revenue.
Another important strategic advantage for Roku is the fact that it controls the home screen on all of its branded TVs. Not only does this screen feature ads that generate revenue for the company, but it’s also a major influencer with regard to how consumers with Roku TVs view streaming entertainment, offering up yet another point of value.
The incredible success Roku has seen stems from its unique operating system. It wasn’t the result of a repurposed operating system designed for some other device. The Roku OS was built from the ground up specifically for the purpose of delivering an all-encompassing source of streaming entertainment.
All of this combined has led to a booming business for Roku and its investors. In the first quarter of 2020, the company saw a 37% year-over-year climb in active accounts. Stream hours climbed by 49%, and average revenue per user was up 28%. The company also saw operating system licensing revenue — which represents about three quarters of its revenue — grow by 73%.
Although Roku hasn’t yet reached profitability, it is doing what Amazon did in the retail sector: building a massive audience and cornering its market. As it continues to do so, the company is seeing user growth and revenue-per-user growth, along with growth in OS uptake. All of this will likely lead to profitability relatively soon as Roku becomes one of the largest streaming technology players in the world.
2. NVIDIA (NASDAQ: NVDA)
NVIDIA is no mom-and-pop tech shop by any means. If you’re into PC gaming, there’s a good chance you’ve heard the name before. NVIDIA is a chip maker best known for its gaming graphics processing units (GPUs).
Most recently, the company claimed the top spot on PC Gamer’s list of “The Best Graphics Cards in 2020.” NVIDIA earned this spot by offering the fastest graphics card that can be used in a PC gaming system, giving players a competitive edge no other product can match.
As its core business, PC gaming chips from NVIDIA are impressive, and revenue from these chips continues to grow. But the larger opportunity for the company may be in the artificial intelligence space.
In recent years, NVIDIA has been producing high-end GPUs for data centers. These GPUs are designed to process artificial intelligence tasks faster than stand-alone CPUs, giving data centers deploying the technology a competitive advantage.
One of the most compelling GPU products to hit the market in the data center space is the new A100 data center GPU by NVIDIA. It’s up to 20 times more powerful than other GPUs the company has produced in the past, and data centers are loving it. It started to generate meaningful revenue for the company shortly after its launch and continues to lead to revenue growth.
Of course, NVIDIA knows where its strengths are. Knowing that there’s tremendous forward-looking value in the data-center space, the company recently acquired the networking company Mellanox to continue its expansion into this subsector of technology.
NVIDIA is already enjoying the fruits of its data-center labor. In the first quarter, revenue in the space rose 80% year over year, coming in at $1.14 billion and representing about 37% of its top line. The tremendous growth was directly attributed to the use of its GPUs for AI and high-performance computing applications among its hyperscale and vertical industry customers like Amazon, Microsoft, and Alphabet.
The company is also making a splash in the auto market. It offers ARM-based Tegra CPUs that are commonly used to power vehicle entertainment consoles. Its tech is also being used in the research surrounding driverless cars.
With a strong history and continued growth in the gaming industry, continued innovation and uptake of its products in the data-center space and other areas of tech (including driver entertainment and autonomous vehicles benefiting from the company’s products), NVIDIA has plenty of room for growth ahead.
3. Adobe (NASDAQ: ADBE)
Investor relations professionals, photographers, videographers, designers, and many other professions require the use of one creative suite or another, and Adobe has the lock on seemingly all of them. It’s the company behind the dominant software platforms Photoshop, InDesign, Illustrator, Acrobat, and Premiere — and those are just the tip of the iceberg.
The company’s strategy is a simple one: Create the world’s leading software in its space. Make it so powerful that any professional in a space who would use the software needs to have it. Then, corner the market. And there’s no doubting the efficacy of Adobe’s software or its ability to completely take control of entire markets.
A shift to software-as-a-service is setting the stage for tremendous growth ahead. Adobe created cloud-based software that can be purchased for use on a monthly or annual basis, opening the door to an important ongoing stream of revenue.
With the cloud-based service, Adobe doesn’t have to pay for the production of discs and packages. It doesn’t have to sell these products at steep discounts to retailers, and it doesn’t have to accept the general margins seen in the software space. The software-as-a-service model is low-cost and high-margin.
Best of all, this model creates a recurring revenue stream. With the software of yesterday, users can purchase the software and use older versions until they feel it’s necessary to upgrade. This can lead to one piece of software being used for multiple years, as some users don’t see a need to upgrade. With the software-as-a-service model, users always get the most updated software and are automatically billed on the monthly or annual program they choose. The implication of this is a big reason for the 46% growth the stock saw in 2019 and will likely drive continued impressive growth in 2020 and beyond.
4. Alibaba (NYSE: BABA)
Even in the United States, the name Alibaba has a fair share of brand recognition. The Chinese company was founded in 1999 as a business-to-business website. Through the platform, small Chinese manufacturers gained access to resellers and exporters in major cities. This original core business led to the conglomerate that is Alibaba today.
As Amazon is the e-commerce giant of the United States, Alibaba holds the crown in China. However, the company is far from a one-trick pony.
Seeing an opportunity in not only online retail, but brick-and-mortar retail, Alibaba drew from its success in the e-commerce space to build out a network of brick-and-mortar shopping centers and grocery stores across China. Seeing success in this new venture, it branched out even further.
One of the fastest-growing businesses within Alibaba is its film, television, and video streaming service, sold under the name Youku. Youku is one of the most popular streaming platforms in China and is often considered to be the YouTube of the region. At the moment, there are more than 500 million monthly active users that produce more than 800 million video views on the platform daily.
Alibaba intends to further expand its Youku property too. The company recently signed a partnership deal with the Premier League’s Manchester United Soccer Club, the most popular sports team in the world according to Kiplinger.
As if all of this wasn’t enough to excite investors about Alibaba, it’s also the largest cloud-computing company in China. The company offers cloud-computing infrastructure, an intuitive platform, and a full suite of financial and database applications.
Tech investors know the cloud-computing space can become a margin-making machine, as investors saw with Amazon Web Services. Should Alibaba’s cloud-computing business follow along the same lines, it has the potential to drum up serious profits very quickly.
At the moment, Alibaba is likely heavily undervalued. Headwinds associated with the trade war between the United States and China are believed to have had a negative effect on the recent price of the stock. However, these headwinds are likely short-term. As a result, getting in at current prices may prove to be an overwhelmingly profitable long-term endeavor.
5. Salesforce.com (NYSE: CRM)
Founded in 1999, Salesforce.com originally focused on customer-relationship-management software, known as CRM. The customer-relationship-management business model was so ingrained in the company, it chose CRM as its ticker symbol when it went public in 2004.
Since then, the company has expanded into new categories. Today, Salesforce.com represents all things database management.
In the early 2000s, while Salesforce.com focused on CRM software, companies like Oracle and SAP dominated the on-premise database industry. As the world turned to cloud-based technology, Salesforce.com saw its opportunity to enter this space with a splash. Today, the company dominates the cloud-database industry as much as Oracle or SAP dominated the physical-database industry 20 years ago.
As with Adobe, the company has also moved to a recurring revenue stream. Selling applications that run on top of basic technology through a subscription model, Salesforce.com has tapped into the high-margin business that is software-as-a-service.
The move worked. In the three years from 2016 through 2019, the company nearly doubled its revenue. It has also seen significant growth in earnings per share over this same period, with earnings coming in at $0.46 per share in 2017 and $1.43 per share in 2019.
As Salesforce.com dominates CRM software — and now cloud-based databases — this growth is likely to continue, making Salesforce.com stock hard to ignore.
When looking for the best tech stocks to buy, it’s important to look for stocks that represent companies at the forefront of innovation in their sector. Roku is dominating smart TV operating systems, and therefore, the smart TV streaming space. The same sort of dominance can be seen in every stock mentioned on this list.
Of course, investing is anything but an exact science. In this world, your opinion is just as valuable as mine, as neither one of us can see into the future. As such, it’s important to keep in mind that investing always comes with risk.
What tech stocks are your favorite? What other sectors do you enjoy investing in?
Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers Team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.