Remember The Game of Thrones? If I had to describe investing in stocks in only four words, it would be “The Game of Trends.” That’s because, by first identifying strong trends and then the companies that will benefit from them, it’s possible to select firms that are very well-positioned to succeed going forward. But of course, it’s also important to make sure that these companies’ individual businesses are indeed trending in the right direction. Using those two criteria, both of which involve trends, investors can find the best tech stocks to buy. The only other important “rule of thumb” is to ensure that you aren’t buying overvalued stocks. With all that in mind, let’s play “the game of trends” and identify the seven best tech stocks to buy now.
Best Tech Stocks: Xpeng (XPEV)
One trend that favors China-based electric vehicle maker Xpeng (NYSE:XPEV) is the fact that the Asian nation’s government looks poised to unleash economic stimulus. Specifically, the country’s Politburo, a key group of leaders within the ruling Communist Party, stated that it would take measures to incentivize consumers to spend more money.
In the past, many such stimulus packages unveiled by Beijing have included subsidies for EVs. so Xpeng could very well directly benefit from the nation’s coming incentives. Showing that the Street expects XPEV stock to get a big lift from the package, the shares were surging 11% on the afternoon of July 24.
Another trend that favors Xpeng is the fact that its new G6 SUV, which costs less than Tesla’s (NASDAQ:TSLA) roughly equivalent Model Y, appears to be very popular in China. Providing evidence for that assertion is the fact that, three days after the company began taking pre-orders for the EV, it had already received more than 25,000 reservations. Finally, as I’ve pointed out in the past, Xpeng is a world leader when it comes to autonomous driving.
Best Tech Stocks: iCAD (ICAD)
iCAD (NASDAQ:ICAD), whose superior breast cancer screening tools utilize AI, is benefiting from rising awareness of the power of artificial intelligence and from its strong, new leadership. Providing evidence for those assertions, iCAD announced a deal with Radiology Partners. According to iCAD, Radiology Partners, “the nation’s largest radiology practice,” will use iCAD’s “breast AI technologies.”
I believe that, given Radiology Partners’ large size, the agreement is a game changer for iCAD. Further, the deal justifies my prior faith in iCAD’s new CEO, Dana Brown who has a very impressive resume and, in my view, will deliver much more good news for the company and its shareholders in the medium term. The $85 million market capitalization of ICAD stock far undervalues the company’s potential and outlook.
Best Tech Stocks: Symbotic (SYM)
In a previous column, I noted that according to Seeking Alpha columnist Arban Shahzeb, Symbotic (NASDAQ:SYM) markets “AI-powered robots” and “AI-enabled data platforms” (that) allow warehouse operators to cut costs, transport their products more quickly, and attain nearly flawless ‘accuracy.’”
I stated that Walmart (NYSE:WMT) and Albertsons (NYSE:ACI) had purchased Symbotic’s products, “validating its offerings.” Indicating that my faith in the company was justified, SoftBank (OTCMKTS:SFTBY) launched a $100 million joint venture with Symbotic. Among the trends from which Symbotic is benefiting is increased respect for the power of AI and robotics. Additionally, I continue to believe that, in the second half of this year, consumers’ demand for goods will rebound and start to normalize, providing SYM stock with another positive catalyst.
In the wake of the agreement with Softbank, the stock’s market capitalization of $22.75 billion far undervalues the company’s long-term outlook.
Baidu (NASDAQ:BIDU) also has multiple, strong, positive catalysts. Like Xpeng, Baidu should get a significant boost from the stimulus measures that Beijing plans to introduce. Additionally, the same rebound in consumers’ demand for goods that I expect to occur in the U.S. should eventually happen in China as well, boosting BIDU’s ad revenue from firms that specialize in selling products to consumers.
Moreover, BIDU should get a major lift from the increased demand for AI. Indeed, Goldman Sachs on July 17 placed BIDU on its Regional Conviction Buy list, citing the company’s ability to benefit from Generative AI. According to the bank, BIDU has an “expanding AI product suite” that’s powered by “four layers of generative AI service offerings.”
Further, Goldman expected the tech company to get a lift from increased ad spending by small and medium businesses that don’t have access to the Internet. The bank placed a $193 price target on the name, well above the $149 level at which the shares were trading on the afternoon of July 25. Finally, as I’ve pointed out in past columns, BIDU, like Xpeng, is a leader in the autonomous-driving race.
Super Micro Computer (SMCI)
As I noted in a past column, Super Micro (NASDAQ:SMCI) “markets servers that are very well-suited for creating AI. One of its servers, for example, ‘supports up to 10 next-gen accelerators.’ AI is produced using accelerators.”
On July 20, my confidence in SMCI (whose shares I own) was rewarded. That’s because the company reported preliminary net sales for its fiscal fourth quarter of $2.16 billion to $2.18 billion, well above its previous outlook of $1.7 billion to $1.9 billion. What’s more, SMCI hiked its Q4 earnings per share guidance, excluding certain items, to $3.35 to $3.45 versus just $2.13 to $2.65 previously. Clearly, SMCI’s business is exploding as the AI phenomenon continues to accelerate.
SMCI has a Composite Rating of 98 out of 99 from Investor’s Business Daily, and the publication gives it an Accumulation/Distribution Grade of A, indicating that institutional investors have been buying a great deal of the shares over the last 13 weeks. Although the shares have more than tripled this year, their forward price-earnings ratio is an attractive 26.
Datadog (NASDAQ:DDOG) should benefit from the increased utilization of AI, which should increase the utilization of its offering, according to Investor’s Business Daily. Additionally, on July 25, research firm Wolfe Research raised its rating on the shares to “outperform” from “peer perform.”
In fact, according to the firm, DDOG is starting to experience less competition, while the positive catalyst that it will receive from AI could make it “the fastest growing software company,” Seeking Alpha reported. Wolfe also believes DDOG’s second-quarter results can significantly exceed analysts’ average estimates. Also, the DDOG stock has a very high forward price-earnings ratio of 96. But analysts, on average, expect the company’s earnings per share to jump to $1.54 in 2024 from just 98 cents last year. Given that tremendous growth, the name’s valuation is attractive.
HubSpot (NYSE:HUBS) is a leader in automating “marketing and sales functions.” Its main offering ” also assists clients in social media, search engine optimization, and website content management.” By incorporating AI into its current offerings, HUBS should be able to greatly improve them, making them much more helpful to companies and causing the already very rapid growth of its top and bottom lines to accelerate meaningfully.
HUBS last reported its quarterly results on May 3. During the quarter, its top line surged 27% year-over-year, while its EPS, excluding certain items, soared more than 100% year over year to $1.20. In addition, the company’s gross margin came in at a very impressive 83.6%. Helping, Barclays expects the company to benefit from the improved health of America’s small and medium businesses. Analysts, on average, predict that the company’s EPS will jump to $6.07 next year from just $2.08 in 2022. given that rapid growth, the stock is attractive despite its very high forward price-earnings ratio of 120.
On the date of publication, Larry Ramer was long XPEV, ICAD, and SMCI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.