Tech stocks are hot right now. At S&P 500 near all-time highs and megacap technology stocks dominate the index. In addition, the Nasdaq-100 Technology Sector Index just a few days away from an all-time high. Whatever you look at, it’s a great time to be a tech investor.
This party won’t last forever, and a pullback in tech stocks is inevitable at some point. That is why it is a smart strategy to identify the strongest business in the sector and put some investment dollars. Every stock slides at some point, but the stronger the business, the faster the recovery. With that in mind, here are three tech stocks you can buy without hesitation.
ASML
Dutch manufacturer ASML (NASDAQ: ASML) build the lithography machines needed to make semiconductor chips. These machines cost hundreds of millions of dollars each and are the size of large shipping containers. For the most advanced chip manufacturing, extreme ultraviolet lithography machines are necessary, and ASML is the only company in the world that can provide them.
In Q1, ASML’s revenue fell 22% year-on-year to 5.3 billion euros. For some companies, a slide in revenue may exist, but the semiconductor industry is still in a downward cycle (despite all the artificial intelligence headlines), and this revenue result is expected by ASML.
What is important is that ASML continues to invest heavily during this industry down cycle to be ready when the cycle picks up again. Management sees 2024 as a transition year, and expects growth to resume in 2025.
Datadog
Business software company Datadog (NASDAQ: DDOG) helps businesses keep track of their computer systems, applications, and cloud services to keep them running smoothly. This is done through an integrated platform that removes the traditional silos that keep different aspects of monitoring separate from one another.
For investors who do not work in fields that require this kind of software, the importance of this software may not be immediately apparent. However, Datadog’s results tell a clear story. In Q1, revenue grew by 27% year over year, the bottom line improved from a loss of $0.08 per share to earnings of $0.12 per share, and the company generated $187 million in free cash.
Investors should keep an eye on Datadog’s customer metrics. The number of customers contributing $100,000 or more in annual recurring revenue (ARR) increased 15% in the quarter, and nearly half of customers now use four or more products. It takes less money to get current customers to spend more than to attract new customers, so as the metric grows, profits should follow.
ServiceNow
ServiceNow (NYSE: NOW) sell software to enterprise customers that help manage information technology, human resources, and customer service management. Like Datadog, because the product is not consumer-facing, its value and importance can be overlooked. But here too, the company’s results should help investors understand how critical the product is.
The great thing about ServiceNow is that it delivers great results over a long period of time. Consider revenue, net income, and free cash flow for the past five years.
Management expects this type of growth to continue. In its Q1 earnings report, the company raised its full-year revenue guidance and expects growth of roughly 22%. This guides for a free cash flow margin of 31%. Consistency is what has made ServiceNow one of the best tech stocks to own over the past decade, and there’s no evidence that it’s going to slow down any time soon.
Should you invest $1,000 in ASML right now?
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Jeff Santoro holds positions at ASML, Datadog, and ServiceNow. The Motley Fool has positions and recommends ASML, Datadog, and ServiceNow. The Motley Fool has a disclosure policy.
3 Unstoppable Tech Stocks to Buy Without Hesitation Originally published by The Motley Fool
