The tech sector offers numerous opportunities to outperform the stock market.
Investors can see the gap by comparing the S&P 500 with the S&P 500 Information Technology Index. The information technology segment has outperformed the broader S&P 500 year to date (YTD), over the past year and over the past five years. Funds like IUIT give investors exposure to the S&P 500 Information Technology index.
While the sector offers many opportunities, some tech stocks are better than others. If you are shopping around for some tech stocks, make sure you consider these picks.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) has delivered impressive gains for long-term investors. The stock is up by 252% over the past five years and is already off to a strong start with a 15% YTD again.
Despite impressive gains, Microsoft should continue to rally. The Q2 FY24 earnings report came in with solid results. Revenue increased by 18% year over year (YOY) while net income jumped by 33% YOY. The company is applying artificial intelligence (AI) at scale across its product suite.
Analysts have an almost universal sense of optimism for this stock. The average price target implies an 11% upside which has prompted a strong buy rating. The highest price target of $550 per share indicates the stock can rally by an additional 29% from current levels.
Microsoft’s growing cloud division suggests that the stock can continue to rally. Cloud revenue increased by 24% YOY, making up over half of the company’s total revenue. If that growth continues, Microsoft’s profit margins should also increase.
Amazon (AMZN)
Also, Amazon (NASDAQ:AMZN) has won the hearts of many analysts. The stock is rated as a strong buy with a projected 13% upside. The highest price of $230 per share indicates that shares can jump by an additional 24% from current levels.
The tech conglomerate delivered another impressive earnings report for Q4 of 2023. Revenue increased by 14% YOY, reaching a record $170 billion. The company’s online marketplace and cloud computing segments both achieved double-digit growth rates. And, Amazon expanded its profit margins to 6.25%.
Furthermore, the company continues to gain market share for its two most important categories. However, it’s also making strides with advertising, video streaming and artificial intelligence (AI). Amazon’s strong leadership team can still innovate and tap into new industries. AMZN has been a top holding in many funds, delighting shareholders with an 81% gain over the past year.
Crowdstrike (CRWD)
Crowdstrike (NASDAQ:CRWD) has built a compelling, recurring revenue model that revolves around cybersecurity. Hackers are getting smarter by using more sophisticated tools to penetrate companies’ databases. But businesses are also getting wiser by working with companies like Crowdstrike to detect and eliminate threats before they get serious.
Also, CRWD has always delivered impressive revenue growth rates. The company achieved a 33% YOY revenue increase and brought its annual recurring revenue to $3.44 billion.
Fortunately, the firm finds itself in the right industry at the right time. Cybersecurity is expected to achieve a compounded annual growth rate of 12.3% from now until 2030. Despite the growth rate, many cybersecurity firms have been reporting lower revenue growth rates and have trimmed guidance.
However, Crowdstrike is one of the few exceptions to the rule. The company continues to grow while elevating its net profit margins. Crowdstrike’s fourth consecutive quarter of positive GAAP net income yielded $53.7 million. The net profit margin was 6.35% for the quarter.
On this date of publication, Marc Guberti held long positions in MSFT and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.