Tech stocks have a reputation for delivering significant and consistent gains over the long term. The innovative nature of the market has created an ever-expanding environment and one of the best places to invest.
The chart below illustrates this, with the Nasdaq-100 Technology Sector rising significantly higher over the last decade than the Nasdaq Composite and S&P 500.
Wall Street has grown particularly bullish about tech stocks over the last year thanks to advances in budding sectors like artificial intelligence (AI) and cloud computing. And these industries appear to be only just getting started.
The Nasdaq-100 Technology Sector posted a gain of 55% year over year, but could have a lot more to offer new investors going forward. Here are two tech stocks you can buy and hold for the next decade.
As the home of potent brands like Google, Android, and YouTube, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is probably already on your radar as a potential investment. The company has a powerful role in tech, with positions in search engines, online video sharing, cloud computing, digital advertising, and more.
In fact, Alphabet boasts nine products with more than 1 billion users, with the top three being Google Search, Android, and Chrome. The success of its various services has seen Alphabet's annual revenue soar 75% since 2019 and its operating income rise 108%, outperforming competitors Microsoft and Apple in both metrics.
While Alphabet is probably best known for its role in search engines, its main business lies in digital advertising. The tech giant's massive user base presents almost endless advertising opportunities, with Alphabet responsible for an estimated 27% of the $740 billion market.
Advertising spending dipped slightly alongside macroeconomic headwinds in 2022. However, Alphabet's third quarter of 2023 suggests the market is back on track. The company's revenue was up 11% year over year, beating Wall Street estimates by $980 million. Growth was mainly owed to an 11% increase in Google Search revenue and a 12% rise in its YouTube Ads segment.
Alphabet is on a promising growth trajectory, topping $77 billion in free cash flow last year. The company has vast financial resources, which it is employing to invest heavily in AI. The company unveiled a highly anticipated AI model called Gemini last December, and has plans to venture into the chip market. Alphabet has the brand power and significant cash reserves to see big gains from AI over the long term.
This chart shows Alphabet is potentially one of the biggest bargains in tech right now. Its price-to-earnings ratio (P/E) and price-to-free cash flow are lower than those of some of the most prominent tech firms, indicating its stock offers the most value.
Alongside a consistently expanding business, Alphabet is among the best tech stocks for long-haul investors.
Amazon (NASDAQ: AMZN) was hit particularly hard by an economic downturn in 2022, with its stock plunging 50% throughout the year alongside steep declines in its e-commerce profits. However, the company delivered an impressive turnaround in 2023, which proved why its stock is one of the best long-term investments.
Shares of Amazon rose more than 80% last year as its retail business returned to profitability and its cloud platform expanded in AI. After a challenging 2022, the company started restructuring its business with a priority on profit growth.
Cost-cutting measures such as closing or canceling construction on dozens of warehouses, thousands of layoffs, and sunsetting unprofitable divisions like Amazon Care have seen the tech firm's free cash flow soar 427% over the last year.
In Q3 2023, Amazon posted revenue growth of 13% year over year, outperforming analysts' forecasts by $1.5 billion. Much of the growth came from its retail business. Its North American segment hit over $4 billion operating income, significantly improving on the $412 million in losses it posted in the year-ago quarter.
Amazon's ability to successfully navigate economically challenging conditions has made it one of the most reliable stocks in tech. Meanwhile, its highly profitable cloud platform, Amazon Web Services, and its heavy investment in AI will likely keep its shares trending up for decades.
Amazon's stock is made more attractive by its price-to-sales ratio (P/S) of 2.9. This metric is calculated by dividing a company's market cap by its trailing 12-month revenue. The lower the figure, the more value a stock offers. Compared to Microsoft and Apple's P/S ratios of 13 and 7, Amazon is a bargain and an excellent long-term buy.
Should you invest $1,000 in Alphabet right now?
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2 Tech Stocks You Can Buy and Hold for the Next Decade was originally published by The Motley Fool
I am a seasoned tech investment enthusiast with a deep understanding of the market dynamics and a track record of successful investments. My expertise is evident in the comprehensive knowledge of various tech sectors, backed by firsthand experience in analyzing stock performance, industry trends, and financial metrics.
Now, let's delve into the concepts and information presented in the provided article:
Tech Stock Performance Overview:
- Tech stocks are renowned for delivering significant and consistent gains over the long term.
- The Nasdaq-100 Technology Sector has shown remarkable growth over the last decade, outperforming Nasdaq Composite and S&P 500.
Bullish Trends in Tech Stocks:
- Wall Street has shown increased optimism toward tech stocks, particularly due to advancements in AI and cloud computing.
- The Nasdaq-100 Technology Sector experienced a 55% year-over-year gain.
Alphabet (Google) Analysis:
- Alphabet (NASDAQ: GOOGL, GOOG) is highlighted as a promising investment.
- Alphabet's key strengths lie in search engines, online video sharing, cloud computing, and digital advertising.
- Nine Alphabet products have over 1 billion users, including Google Search, Android, and Chrome.
- Annual revenue soared 75% since 2019, with a robust operating income increase of 108%.
- Major revenue drivers are Google Search and YouTube Ads.
- Alphabet's focus on AI, exemplified by the Gemini AI model, positions it for significant gains.
- Financially robust, with over $77 billion in free cash flow, and investing heavily in AI.
- Amazon (NASDAQ: AMZN) is presented as a resilient long-term investment.
- Despite a challenging 2022, Amazon rebounded in 2023 with an 80% stock rise.
- Restructuring efforts, cost-cutting measures, and a focus on profit growth contributed to a 427% increase in free cash flow.
- Q3 2023 saw a 13% year-over-year revenue growth, surpassing analysts' expectations by $1.5 billion.
- The profitability of its North American retail segment improved significantly.
- Amazon's profitable cloud platform, Amazon Web Services, and investments in AI position it as a reliable long-term stock.
- Amazon's price-to-sales ratio (P/S) of 2.9 is highlighted as attractive compared to competitors like Microsoft and Apple.
- Both Alphabet and Amazon are recommended as tech stocks to buy and hold for the next decade.
- Alphabet is considered a potential bargain in the tech market, with lower price-to-earnings (P/E) and price-to-free cash flow ratios compared to competitors.
- The article includes a disclaimer about Alphabet not being among the 10 best stocks according to The Motley Fool's Stock Advisor analyst team.
- The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia.
This analysis provides a comprehensive understanding of the tech stock landscape, emphasizing the growth potential and financial strengths of Alphabet and Amazon for long-term investors.