The search for high-growth stocks may have taken a pause, for many investors. Rising interest rates have reduced the allure of growth companies relative to profit-generating dividend stocks. Additionally, recession risks have risen considerably in recent years, leading some investors to focus on tilting their portfolios in a defensive direction.
With that said, there are still some high-growth stocks that appear to be reasonably priced in this current market. Not all large-cap tech stocks are overvalued, and there will always be pockets of relative value to be exploited. I believe the close value gap today in higher-growth areas of the market is the widest it’s been in some time.
So, for those looking to be a stock picker, here are the best high-growth stocks to buy.
Microsoft (NASDAQ:MSFT) leads the AI race with collaborations like OpenAI to advance ChatGPT and GPT-4. The company aims to incorporate AI across various business segments, including the company’s Azure and Xbox business lines. Many experts and tech aficionados point to Microsoft’s early investments in this space, and its long-term growth trajectory has improved.
Microsoft is a common investment holding and a significant part of many index funds. Accordingly, the 36% year-to-date rise in MSFT stock has benefited many investors, whether they know it or not. Those who have held this stock over the longer-term have done even better, with their position soaring roughly 200% over the past five years. Despite this impressive performance, analysts foresee further upside potential, with Wells Fargo maintaining an overweight rating and setting a $400 price target, implying a 22.3% increase from the current price of about $327 per share.
Microsoft not only exceeded Q2 earnings expectations with an impressive $88.52 billion in operating income but also demonstrated strength in vital growth areas like AI, cloud, gaming, and cybersecurity. This, coupled with its solid financials and commitment to innovation, solidifies its dominant role in the tech world and assures investors of its enduring market presence.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) made a strong comeback, with its valuation becoming attractive after a significant drop in its stock price. The company remained profitable and delivered solid results in 2022, with stable revenue, strong operating margins, and improved monetization of platforms like Reels. This marks a contrast from the sharp user decline experienced in 2021.
Meta faced skepticism as it has invested heavily in the metaverse, but it’s also a thriving social media and networking firm. The company has enhanced its monetization efforts in the digital advertising space, and its launch of Threads opens up yet another avenue for monetization down the road. In Q2, Meta reported revenue of nearly $32 billion and earnings of $2.98 per share, with a 16% profit increase from the previous year. Additionally, the company introduced generative AI tools to aid advertisers and boost revenue.
Moreover, OpenAI’s latest Llama and Llama 2 models compete with ChatGPT. The reveal of Quest 3 VR headset and Ray-Ban smart glasses collaboration bolsters growth. I think the company’s strong financials and diversified income sources from platforms like Instagram, WhatsApp, and Facebook make Meta a high-growth stock with plenty of room to run higher from here.
Zoom Communications (ZM)
Zoom (NASDAQ:ZM) stock surged during the pandemic but has since retreated over 85% from its peak. While pandemic-related growth has slowed, the remote work trend presents long-term potential. Zoom aims to expand its presence in the corporate market and diversify into a broader business communication platform. This makes it one of those high-growth stocks to buy.
Zoom is in a strong financial position, with $6 billion in cash. Free cash flow reached $750 million in the last six months, and net income improved. The company is focusing on growth initiatives, including generative AI in services like Zoom Virtual Agent.
This growth resulted from an increased customer base and higher spending. Enterprises renewed their contracts at a 9% higher rate this year. Zoom aims to further improve this metric by expanding its service offerings. The company is also attracting more high-revenue contracts, which increased by 18% to 3,700 last quarter. Overall, the company’s financial picture appears to be moving in the right direction, and I think Zoom can continue to grow its way to a higher valuation from here.
On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.