When it comes to finding tech stocks, investors tend to gravitate to the top stocks in the industry. These companies tend to combine faster-than-average growth rates with solid balance sheets, making them a frequent choice.
However, timing can temporarily reduce the popularity of such choices. Although investors may like Nvidia's artificial intelligence (AI) chip dominance, they may stay away due to a high valuation. Conversely, Intel's decline and periodic setbacks may leave investors questioning whether one should consider it a "top" tech stock.
Still, other top tech stocks may look more like buys now. Investors may want to consider Alphabet (GOOGL -1.09%) (GOOG -1.05%), Qualcomm (QCOM 0.22%), and Airbnb (ABNB -1.20%).
1. Alphabet
Alphabet has met with unexpected struggles in recent months. A release of an upgraded version of OpenAI's ChatGPT appeared to catch the company off guard. And given OpenAI's relationship with Microsoft, many wondered whether Google's search and cloud platforms could stay competitive.
Nonetheless, it is likely too early to count the Google parent out. It has utilized AI for more than 20 years and became an "AI-first" company in 2016, so it remains a player in that industry.
Also, it has responded with its own generative AI product called Gemini. While it has not escaped controversy, Alphabet has shown it is not going to surrender to its competitors.
Moreover, it holds about $111 billion in liquidity, a cash hoard matched by few companies. Thus, if its researchers cannot invent competing in-house products, it can likely buy the technology it needs.
Indeed, Alphabet has sustained revenue growth amid struggles, as its $307 billion in revenue for 2023 rose 9% yearly. Also, its net income for that year of $74 billion is above 2022 levels and has nearly caught up to the 2021 earnings of $76 billion, when many of its customers were in lockdown.
Finally, despite doubts, the stock has generally increased, and the 27 P/E ratio is right at its five-year average. Such conditions make now an excellent time to add shares steadily.
2. Qualcomm
Amid falling sales of its 5G chips in recent months, Qualcomm seems to have fallen out of favor. A sluggish economy reduced sales in past quarters, and with increasing investments in its Internet-of-Things (IoT) and automotive segments, it faces uncertainty as it prepares for the day when smartphone usage may fall.
However, the company has not let the rise of AI pass it by. Its Snapdragon 8 Gen 3 chip is AI-enabled, likely bringing more AI capabilities to smartphones. Moreover, it applies AI technology to signal reception, improving overall communication quality. This should lead to a significantly improved performance for its smartphone chipsets.
The most recent financial results indicate the comeback may have already begun. In the first quarter of fiscal 2024 (ended Dec. 24, 2023), revenue of $9.9 billion rose 5% from year-ago levels and improved from the 19% revenue decline in fiscal 2023.
Also, net income in fiscal Q1 was $2.7 billion, a 24% yearly increase. That should go a long way in turning profitability around, after it fell 44% in fiscal 2023.
Over the last six months especially, investors have steadily turned more bullish on Qualcomm, and the stock gained 33% over the previous year as a result.
Also, even though its valuation has climbed, its 23 P/E ratio compares well to other AI chip designers. Those factors should bode well for Qualcomm as it continues leading the smartphone chipset market.
3. Airbnb
Airbnb has stood out for applying technology to transform the short-term rental industry. The company's platform has allowed it to turn any room or residential unit into a potential vacation property. Its increased recognition attracts prospective landlords and tenants alike, creating a virtuous cycle that leads to more nights and experiences getting booked on its platform.
Additionally, AI has played a critical role in its success. That technology helped with challenges such as pricing a property in a specific market, vetting prospective tenants, and preventing disruptive parties from taking place.
Overall, it has become an ecosystem that steadily grows its reach and revenue. In 2023, revenue was $9.9 billion, 18% more than the previous year.
Admittedly, general and administrative expenses more than doubled due to a spike in operational and business taxes, causing expenses to rise by 29%. However, a $2.7 billion income tax benefit and a spike in interest income allowed it to earn $4.8 billion, a 153% yearly gain.
Investors have largely overlooked the higher operating costs, and Airbnb stock rose nearly 30% over the last year.
Also, while the income tax benefit led to an artificially low P/E ratio of 22, the forward P/E of about 35 indicates the market has reasonably priced the stock. That should bode well for investors as Airbnb transforms the short-term rental industry through technology.
