Here are three technology stocks that should definitely be on your buy list.
In just five decades or so, technology has improved by leaps and bounds, shifting us from large mainframe computers in the 1970s to smartphones with internet connectivity in the 2020s. The good news is that 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 who are looking for investment ideas should turn their attention to the technology sector, where many solid growth stocks can be found. A wide range of companies are benefiting from this digitalization shift and should see a sharp surge in demand for their products, services, and solutions. Owning such stocks over the long term means you get to ride this trend and enjoy attractive capital gains that can set you up for your retirement.
Here are three stocks that you can buy to take advantage of this technological wave.
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Microsoft
Microsoft (MSFT -3.58%) is a technology behemoth with a market capitalization exceeding $3 trillion. The company sells and markets its Microsoft 365 suite of software applications and owns the business networking site LinkedIn. Despite its huge size, investors may be surprised to learn that the business is still demonstrating steady growth. From fiscal 2021 (the company has a June 30 fiscal year-end) to fiscal 2023, total revenue jumped from $168.1 billion to $211.9 billion. Net income increased from $61.3 billion to $72.4 billion over the same period. The software giant also generated an average free cash flow of around $60.2 billion over the three fiscal years. Microsoft’s dividend history has also been stellar, with the company raising its quarterly dividend without fail since fiscal 2010. The most recent quarterly dividend stood at $0.75, up from $0.68 a year ago.
The company’s momentum has carried over the first nine months of fiscal 2025. Revenue rose nearly 16% year over year to $180.4 billion while operating income improved by almost 27% year over year to $81.5 billion. Net income stood at $66.1 billion for the nine-month period, up 26% year over year. Microsoft has carried on its tradition of generating copious amounts of free cash flow, with $50.7 billion churned out during the nine months, up 28% year over year. The Redmond-based company has conducted acquisitions and forged collaborations to continue growing its business. Back in 2019, Microsoft and OpenAI formed a partnership to build a supercomputing platform for the former’s cloud service, Microsoft Azure. A few years later in 2022, Microsoft purchased Activision Blizzard for $68.7 billion to grow its gaming segment. More recently, the company invested $1.5 billion in G42, a UAE-based artificial intelligence company to enable the country to become a global AI hub. Microsoft also announced that it is working with ServiceNow, a digital workflow management company, to expand its strategic alliance and work on generative AI capabilities. Last month, the software giant forged an agreement with Japanese electronics company Hitachi to tap into generative AI to create innovative business solutions. These business development efforts should pave the way for Microsoft to continue expanding its presence and allow the company to increase its dominance in the technology world.
Broadcom
Broadcom (AVGO -7.59%) helps to design and develop a range of semiconductor, enterprise software, and security solutions. The company looks set to ride the surge in demand for AI, which should translate into more business for its range of solutions. Broadcom’s financials are solid — revenue grew from $27.5 billion for fiscal 2021 (ending October) to $35.8 billion for fiscal 2023. Net income did even better, more than doubling from $6.4 billion to $14.1 billion over the same period. The business also generated steadily higher free cash flow, going from $13.3 billion in fiscal 2021 to $17.6 billion in fiscal 2023. It paid an annual dividend of $1.84 per share, 12% higher than the $1.64 paid out a year ago.
Broadcom continued to report higher revenue for the first half of fiscal 2024, but net income was impacted by higher research and development expenses and restructuring charges. Revenue for the first half of the year increased 38% year over year to $24.4 billion but net income fell by more than half to $3.4 billion. The company had completed its acquisition of VMWare, a company dealing with enterprise software, for around $61 billion back in November 2023 and the numbers reflect the consolidated results of both businesses. It declared a quarterly dividend of $0.525 per share, taking the annualized dividend to $2.10 per share for a 14% year-over-year increase. Management is confident about the future and has raised its guidance for fiscal 2024 revenue to come in at $51 billion, or close to 43% higher than that reported for fiscal 2023. With the proliferation 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 -5.97%) produces and supplies wafer fabrication equipment and software that is used to produce microchips for smartphones, televisions, and flat-panel displays. The company is poised to ride the trend for more complex semiconductor chips as it continuously delivers improvements in its equipment to enable more efficient computing. Applied Materials’ financial numbers have been robust over the years and look set to continue improving as demand increases for its equipment. Revenue increased from $23.1 billion to $26.5 billion from fiscal 2021 (ended Oct. 31) to fiscal 2023. Net income climbed from $5.9 billion to $6.9 billion over the same period, and the business also generated positive free cash flow for all three years. Applied Materials has also been increasing its quarterly dividend at an impressive pace since fiscal 2017, with fiscal 2023 and 2024 seeing a 23% and 25% year-over-year increase to $0.32 and $0.40 per share, respectively.
Applied Materials continued to post a strong set of earnings for the first half of fiscal 2024. Although revenue remained flat year over year at $13.3 billion, net income improved by 14% year over year to $3.7 billion. The company continues to churn out positive free cash flow for the first half of fiscal year 2024, and management issued strong guidance for its third quarter. The company expects revenue to come in at around $6.65 billion, above analysts’ estimates of $6.58 billion. Adjusted net profit per share is projected to be in the range of between $1.83 and $2.19, at the higher end of analysts’ estimates of $1.98. There could be more to come for the business as management sees catalysts that can drive the company’s performance forward. The semiconductor device market grew 15% year over year in the first quarter of 2024 with cloud service providers announcing ambitious capital expenditure plans. The company has also announced its intention to double its manufacturing capacity, headcount, and research activities in Singapore in the coming years. Applied Materials also recently announced chip wiring innovations that entrench it firmly at the forefront of innovative research. The company will be the first to use ruthenium in high-volume production to enable more efficient production of the 2 nanometer chip, while its new enhanced dielectric material, Black Diamond, helps to strengthen chips for 3D stacking and is being adopted by leading logic and dynamic RAM chipmakers. With healthy sector tailwinds and its keen focus on research to improve its technological edge, Applied Materials is a stock that can deliver many more years of healthy growth.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials and Microsoft. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.