Tech stocks have consistently been in the spotlight over the past couple of years, driving the bulk of the market’s bullish rally with remarkable advancements in AI, in particular, fueling innovation and growth. As we move further into Q3, tech stocks are expected to remain highly popular, bolstered by the sector’s robust growth despite the still somewhat shaky macroeconomic environment.
For this article, I have picked three tech stocks that I think investors should watch closely. These companies are growing rapidly while still trading at rather attractive valuations, a combination that is likely to keep fueling their bullish cases. Whether you’re looking to capitalize on AI-driven advances or invest in companies with solid market positions and strong financial metrics, I believe that the following stocks offer exciting opportunities in the space. Let’s take a deeper look!
Taiwan Semiconductor Manufacturing (TSM)
As we move further into Q3, one tech stock that stands out and deserves a place on every investor’s watchlist is Taiwan Semiconductor Manufacturing (NYSE:TSM). As the largest independent semiconductor foundry globally, TSM remains a highly critical player in the semiconductor industry.
Although Nvidia (NASDAQ:NVDA) often captures the spotlight among semiconductor stocks these days, it heavily relies on TSM’s fabrication capabilities to bring its cutting-edge chips to market. This dependence underscores TSM’s monopolistic advantage and indispensable role within the industry.
TSM’s most recent Q2 results beat Wall Street estimates by a wide margin, driven by the adoption of its 3-nanometer process technology. Revenues hit $20.8 billion, marking a 32.8% year-over-year increase and a notable acceleration from the growth posted in its earlier reports. In fact, Q2 marked the best top-line growth in six quarters, bolstered by strong momentum in high-performance computing and digital consumer electronics, despite minor declines in smartphone-related sales.
In the meantime, despite the stock’s prolonged rally over the past year, TSM stock is now trading at a price-to-earnings (P/E) ratio of just 24.7, which I find pretty attractive given the company’s explosive growth and impenetrable moat.
Alphabet (GOOGL, GOOG)
Another tech stock to pay close attention to these days is Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), given its leadership in AI innovation, which has significantly propelled its rapid growth, as showcased in its most recent results. Essentially, Alphabet’s Q2 report highlighted its status as a “compounding machine,” with the company continuing to post double-digit growth despite prevalent concerns a couple of years ago that the rise of AI would disrupt its business.
Revenues soared to $84.7 billion, surpassing consensus estimates by nearly half a billion dollars and marking a 14% increase from the previous year. EPS also beat expectations, coming in at $1.89, celebrating an even more noteworthy 31.3% increase.
Alphabet’s growth was driven by strong performances in Google Search and YouTube, powered by AI-driven advertising and a robust ad market. Additionally, Google Cloud’s 29% revenue growth and margin expansion boosted Alphabet’s operating margin to 32%, improving its profitability prospects.
Despite its impressive growth momentum, Alphabet’s stock valuation remains surprisingly low, trading at just under 22 times this year’s projected EPS. I believe this offers a strong opportunity for investors, given that Alphabet’s growth is expected to remain particularly strong over the medium term.
Adobe (ADBE)
Last but not least, another tech stock that I think should be on every investor’s watchlist is Adobe (NASDAQ:ADBE). Despite recent challenges, including fears about advancements in AI potentially impacting its software suite and social media backlash over subscription practices, Adobe has demonstrated remarkable resilience and growth.
Specifically, in its most recent fiscal Q2 results, Adobe extinguished fears that AI would render its creative suite obsolete. Instead, the company showcased notable progress in integrating AI into its offerings. New tools, like FireFly, are now commercially available, unlike potential competitors such as OpenAI’s Sora, which have yet to reach commercial viability.
Concerns about subscription cancellations also proved unfounded. Adobe reported record revenues of $5.31 billion, an 11% rise in constant currency. Adjusted EPS came in at $4.48, marking a 15% year-over-year growth. Consensus estimates now anticipate a full-year EPS of $18.16, indicating robust double-digit growth of 13% and thus sustained momentum moving forward.
With shares still significantly below their previous highs, Adobe presents a compelling opportunity. Therefore, I believe it merits a prominent place on investors’ watchlist.
On the date of publication, Nikolaos Sismanis held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held long positions in NVDA and GOOG.