It is no surprise that the tech stocks have been soaring this year, more than ever, due to the increased dependence of individuals and businesses on technology amid the pandemic. The industry’s unprecedented performance was paused over the past two months owing to concerns related to a second fiscal stimulus and the presidential election. Furthermore, the recent vaccine news from Pfizer, Inc. (PFE) and BioNTech SE (BNTX) led some people to shorting tech stocks with the assumption that the demand for tech offerings will reduce as the virus gets under control. However, in the long run, tech stocks are expected to be a winning sector.
With a rising number of coronavirus cases in the United States, people are expected to spend more time at home. Moreover, many big companies are considering maintaining a ‘work-from-home’ culture even after the pandemic. For example, Twitter, Inc. (TWTR) told its employees they can work from home ‘forever.’
The Robinhood 100 list contains a number of tech stocks, but selecting the fundamentally strong ones is best for your portfolio. Microsoft Corporation (MSFT), Amazon.com, Inc. (AMZN), PayPal Holdings, Inc. (PYPL), and Advanced Micro Devices, Inc. (AMD) certainly fit the bill as we head towards 2021.
Microsoft Corporation (MSFT)
Founded in 1975, the Satya Nadella led company MSFT needs no introduction. The Washington-based company develops, licenses, and supports software products, services, and devices worldwide. Its cloud computing arm, Microsoft Azure, is an emerging leader in the field. MSFT is on the Robinhood 100 Most Popular list, with 90% of analyst ratings as a ‘Buy.’
Adapting to the ‘new-normal,’ MSFT delivered strong results for the quarter that ended September 2020. Total revenue increased 12.4% year-over-year to $37.2 billion. Revenue from the intelligent cloud segment increased 19.7% year-over-year to $13 billion, driven by growth in consumption-based services. LinkedIn revenue increased 16% year-over-year, driven by growth in marketing solutions. Net income increased 30.1% year-over-year to $13.9 billion. EPS increased 31.9% year-over-year to $1.82.
Analysts expect MSFT’s revenue to increase 8.9% for the quarter ending December 2020, 10.7% in 2021, and 11.1% in 2022. The company’s EPS is expected to grow 8.6% for the quarter ending December 2020, 17.5% in 2021, and at a rate of 14.5% per annum over the next five years. MSFT’s earnings surprise history looks impressive with the company beating the consensus estimate in each of the trailing four quarters.
MSFT announced a multi-year collaboration with Cooler Screens last month to focus on bringing an immersive digital experience to brick-and-mortar retail environments. Cooler Screens’ retail technology replaces traditional screens with Internet of Things (IoT) enabled high-resolution smart screens. MSFT teamed up with Verizon (VZ) to offer private 5G mobile edge computing. On October 22nd, Honeywell (HON) announced that by leveraging Microsoft Azure, their partnership will drive new levels of productivity for industrial clients. The stock has gained 36% year-to-date, and is currently trading 9.4% below its 52-week high of $232.86, which it hit on September 2nd.
How does MSFT stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
The stock is also ranked #13 out of 96 stocks in the Software – Application industry.
Amazon.com, Inc. (AMZN)
Operating for more than two decades, AMZN is the world’s largest online retailer. The Prime Day held last month generated nearly $3.5 billion in sales. The company also dominates the cloud domain with its Amazon Web Services (AWS). The Jeff Bezos led company also manufactures and sells electronic devices, including Kindle e-readers, Fire tablets, Fire TVs, Echo and Fire phones. AMZN is on the Robinhood 100 Most Popular list having 94% of the analyst ratings as a ‘Buy.’
AMZN’s net sales increased 37.4% year-over-year to $96.1 billion for the third quarter that ended September 2020. Net sales from AWS increased 29% year-over-year to $11.6 billion. North America net sales increased 39.2% year-over-year to $59.4 billion. Net income increased 196.7% year-over-year to $6.3 billion. EPS increased 192.4% year-over-year to $12.37.
Analysts expect AMZN’s revenue to increase 36.6% for the quarter ending December 2020, 35.4% in 2020, and 18.3% next year. The company’s EPS is expected to grow 51.5% this year, 30.1% next year, and at a rate of 36.4% per annum over the next five years. AMZN’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.
AMZN announced the general availability of its AWS Network Firewall on November 17th. It also recently introduced Amazon Pharmacy, which allows customers to complete an entire pharmacy transaction on their desktop or mobile device through its app. Prime members will also receive unlimited, free two-day delivery on orders from Amazon Pharmacy. AWS announced earlier this month that it will open an infrastructure region in Switzerland in the second half of 2022. On a year-to-date basis, the stock has rallied 69.7% and is currently trading 12.6% below its 52-week high.
In our POWR Ratings system, AMZN has been accorded an “A” rating for Industry Rank, and a ”B” for Buy & Hold Grade. Within the Internet industry, it’s ranked #5 out of 58 stocks.
PayPal Holdings, Inc. (PYPL)
Founded in 1998, PYPL has come a long way and operates as a digital technology platform enabling digital and mobile payments on behalf of consumers and merchants worldwide. With the rise of digital payments, PYPL has become a household name, available in more than 200 markets around the world. With more than 325 million active account holders, PYPL’s payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products. PYPL is on the Robinhood 100 list, with 84% of the analyst ratings a ‘Buy.’
PYPL’s revenue increased 24.7% year-over-year to $5.5 billion for the third quarter that ended September 2020. This was primarily driven by constant innovations from the company, in addition to a pandemic-ready business model. The company’s net revenues from the United States increased 21.2% year-over-year to $2.8 billion. The number of active accounts increased 22.4% year-over-year to $361 million. Non-GAAP Net Income increased 41.7% year-over-year to $1.3 billion. Non-GAAP EPS increased by 40.8% year-over-year to $1.07.
Analysts expect PYPL’s revenue to increase 22.6% for the quarter ending December 2020 and 18.7% next year. The company’s EPS is expected to increase 21.9% this year, 21.2% next year, and at a rate of 23% per annum over the next five years. PYPL’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.
PYPL partnered with Even on November 17th to improve the financial health of its workforce. Last month, the company announced the launch of a new service enabling its customers to buy, hold, and sell cryptocurrency directly from their accounts. PYPL has been working with Mastercard Incorporated (MA) for many years and has continued the expansion of its popular PayPal Business Debit Mastercard to more European businesses. The stock has gained 77.8% year-to-date and is currently trading 11.9% below its 52-week high of $215.83.
It’s no surprise that PYPL is rated a “Buy” in our POWR Ratings system. It also has a “B” for Buy & Hold Grade and Industry Rank. In the 46-stock Consumer Financial Services industry, it is ranked #8.
Advanced Micro Devices, Inc. (AMD)
Based in Sunnyvale, California, AMD is an emerging leader in the semiconductor industry. The company manufactures semiconductor products, including microprocessors, embedded microprocessors, chipsets, graphics, video and multimedia products. The company operates through two segments, computing and graphics, and the enterprise, embedded and semi-custom segment, which has been thriving even amid stiff competition from NVIDIA Corporation (NVDA), Intel Corporation (INTC), and QUALCOMM Incorporated (QCOM).
AMD had a strong third quarter (ended September 2020). Net revenue increased 55.5% year-over-year to $2.80 billion, primarily driven by higher revenue from the Enterprise, Embedded, and Semi-Custom and Computing and Graphics segments. While AMD’s revenue from the computing and graphics segment increased 30.6% year-over-year to $1.67 billion, revenue from the Enterprise, Embedded, and Semi-Custom segment increased 116% year-over-year to $1.13 billion. Non-GAAP Net income increased 128.8% year-over-year to $501 million. Non-GAAP EPS increased 127.8% year-over-year to $0.41.
Analysts expect AMD’s revenue to increase 41.6% for the quarter ending December 2020, and 25.2% next year. The company’s EPS is expected to increase 43.8% for the quarter ending December 2020, 92.2% this year, and at a rate of 38.2% per annum over the next five years. AMD’s earnings surprise history looks impressive with the company beating consensus EPS estimates in each of the trailing four quarters.
Last month, AMD entered into a definitive agreement to acquire Xilinx, Inc. (XLNX) for $35 billion. The company launched the new AMD Instinct MI100 accelerator during this year’s SC20 virtual trade show, held on November 16th. AMD unveiled the AMD Radeon RX 6000 Series graphics cards last month, with features that have set a new standard for PC gaming experiences’ enthusiasts. With the world going digital, the stock has gained 81.8% year-to-date. It is currently trading 12.5% below its 52-week high.
It’s no surprise that AMD is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, and Industry Rank and a “B” for Buy & Hold Grade. In the 86-stock Semiconductor & Wireless Chip industry, it is ranked #35.
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MSFT shares were trading at $211.26 per share on Thursday afternoon, up $0.18 (+0.09%). Year-to-date, MSFT has gained 35.38%, versus a 12.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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