Despite their recent fall, U.S. tech stocks are among the best-performing asset classes. Even Warren Buffett-led Berkshire Hathaway, which has traditionally stayed away from tech stocks, is finally warming up to the sector and investing in Snowflake, a cloud data company. What are the best tech stocks in 2020?
Best tech stocks on the Nasdaq
The Nasdaq index hit a record high earlier this month. However, it is currently down from its Sept 2 highs. The fall could be an opportunity to buy some quality tech stocks. For diversified exposure to tech stocks, you could also consider a tech-focused mutual fund or an ETF.
Microsoft stock is down over 10 percent from its 52-week highs. The company is generating record cash flows and looking at aggressive growth, as its recent bid for TikTok showed. While the bid failed, Microsoft could look at other opportunities. The company has a diversified business model spread across consumer and corporate markets and looks like a good tech stock to buy.
That doesn't convince me we need a wealth tax.— Jonathan Newman (@NewmanJ_R) September 15, 2020
If you think you deserve some of Amazon's profits, then buy some Amazon stock.
We already have a profit sharing program in free markets: the stock market.
Amazon is another tech stock that you can buy in 2020 and hold for the long term. It is down over 11 percent from its recent highs. The company looks set to grow over the near future. With its e-commerce and cloud verticals, it looks like a good bet on a digital future.
Slack stock is down over 36 percent from its recent highs. It tumbled after its fiscal second-quarter earnings failed to lift sentiment. It faces a lot of competition from giants such as Microsoft Teams. Zoom is also emerging as a competitor. However, with a strong management team, Slack has handled competition well so far. Its valuation multiples look much more reasonable after the recent fall, with a forward-price-to-sales multiple of 14.7x. The multiple was at 26x in June.
Best tech stocks 2020
With a year-to-date gain of 118 percent, Nvidia is the second-best performing stock on the S&P 500. It is down almost 12 percent from its recent highs. The company’s gaming business has blossomed amid the COVID-19 pandemic. It recently announced the acquisition of chip design company Arm Holdings from SoftBank. If the deal is completed, it would give Nvidia a pole position in the smartphone chip design market. Apple is even planning to shift the architecture of its Mac computers to Arm from the current Intel design.
NIO is another tech stock you can consider in 2020. It is up over 377 percent in 2020 as it won the survival battle. The company has raised a lot of capital this year that has helped allay bankruptcy issues. It has tactical backing from the Chinese government, which is another plus. Given the expected growth in electric vehicles especially in China, NIO seems a good stock to buy. The company is also looking at international expansion beginning with Europe.
Should you be worried about a crash in tech stocks?
The recent fall in tech stocks has raised fears that they might be in a bubble. While the valuations of tech stocks are at multi-year highs, they are still way below the dot com days. While markets are valuing some growth stocks at exorbitant multiples, many others are solid companies with strong cash flows and balance sheets.