At first glance, the narrative for tech stocks to buy appears discouraging, to say the least. While the benchmark S&P 500 (SPX) dropped by 25% on a year-to-date basis, the tech-centric Nasdaq Composite suffered more severely, shedding over 33% during the same period. Nevertheless, because this segment centers on forward innovations, it will likely command long-term relevance. Therefore, investors may want to consider two compelling tickers: ASML and AMD.
At the beginning of this year, many on Wall Street were hopeful that the equities sector could parlay 2021’s incredible joyride into another 365 days of massive upside. Unfortunately, the prior excesses stemming from unprecedented fiscal and monetary support – arguably necessary actions to mitigate the COVID-19 impact – caught up with the economy. Suddenly, skyrocketing inflation rapidly dominated mainstream headlines.
To combat this dilemma, the Federal Reserve implemented a hawkish pivot to its monetary policy, raising the benchmark interest rate to cool rising prices. However, inflationary cycles offered a robust (albeit cynical) catalyst for tech stocks to buy. With the dollar’s purchasing power declining, an active incentive existed for cash holders to do something with their money: either spend it or invest it. Otherwise, holding it will result in wealth erosion.
However, as purchasing power rises, the opposite scenario rings true. An incentive exists to do nothing with said dollars because apathy leads to wealth expansion. As largely risk-on assets, tech stocks to buy suffered as the Fed effectively raised borrowing costs.
Moreover, the latest jobs report for September indicated that the labor market came in hotter than expected. While usually a positive development, rising employment translates to more money chasing after few goods. This dynamic then exacerbates the inflationary headwind that the Fed is attempting to control. Therefore, more rate hikes could be on the way, boding poorly for tech stocks to buy - on paper.
Nevertheless, the underlying innovations of the tech sector should remain intriguing following the conclusion of the Fed’s hawkish pivot. Therefore, forward-looking contrarians may want to consider the below tickers.
ASML Holding (NASDAQ:ASML)Though perhaps not a household name, ASML fundamentally rates as one of the most important tech stocks to buy. Based in the Netherlands, ASML is the only company in the world manufacturing extreme ultraviolet (EUV) lithography machines. Essentially, lithography is the practice of printing small, complex designs on semiconductors. It’s no exaggeration to say that ASML undergirds the various conveniences people enjoy in digitally integrated societies.
Therefore, unless investors envision a future where semiconductors themselves are rendered obsolete, ASML appears a wise long-term bet for tech stocks to buy. Enticingly, many on Wall Street don’t share the optimistic perspective, with ASML stock slipping over 45% since the beginning of this year. This circumstance adds to the discounted narrative for the lithography specialist.
Financially, ASML features a good business profile. The company is well balanced, anchored by decent stability in its balance sheet. However, ASML comes alive on the income statement. For example, it features a three-year revenue growth rate of 20.9%, ranked better than 76% of the competition. As well, the company features a net margin of 28%, ranked higher than nearly 91% of the semiconductor industry.
Is ASML a Good Stock to Buy, According to Analysts?Turning to Wall Street, ASML stock has a Moderate Buy consensus rating based on just two Buys. The average ASML price target is $652.00, implying 63.2% upside potential.
Advanced Micro Devices (NASDAQ:AMD)Specializing in graphics processing units, Advanced Micro Devices enjoyed a banner performance following the spring doldrums of 2020. Initially, AMD benefited from the hostage audience framework that the pandemic caused. With so many people stuck at home, the company effectively marketed its gaming-centric GPUs.
In 2021, the cryptocurrency took off, thus sparking unparalleled demand for crypto-mining equipment. With AMD’s processors undergirding the intense calculations necessary for blockchain-related functions, the company’s equity value skyrocketed. Unfortunately, all good things must come to an end. As virtual currencies tumbled since late 2021, AMD stock lost tremendous ground.
Year-to-date, shares have fallen a staggering 60%. To be clear, AMD does not represent an easy idea for tech stocks to buy. Nevertheless, with the company aggressively competing in relevant segments such as data centers, AMD may be a solid long-term idea.
Financially, AMD rates as a possible value trap in part due to the severe market losses it absorbed. However, the company features decent income statement performance metrics. For instance, its three-year revenue growth rate stands at 30%, ranking higher than 89% of its peers. As well, AMD enjoys stability in its balance sheet. Notably, its equity-to-asset ratio is 0.82x, better than the industry median of 0.6x.
Is AMD a Good Stock to Buy, According to Analysts?Turning to Wall Street, AMD stock has a Moderate Buy consensus rating based on 20 Buys, seven Holds, and one Sell rating. The average AMD price target is $97.86, implying 69.8% upside potential.
Conclusion: Smart Wagers for the DaringInvariably, the concept of buying tech stocks at this juncture will involve significant risk. With all that’s happened in the market, volatility is almost guaranteed. Nevertheless, innovation trends point toward greater integration of digitalization, not less. Therefore, both ASML and AMD offer solid market ideas with differing risk-reward profiles.