Investing in the tech sector has yielded solid returns for investors. The Vanguard Information Technology Index Fund (NYSEARCA:VGT) has more than doubled over the past five years. It’s filled with tech stocks, but it has significant exposure to the Magnificent Seven. That’s no surprise, as these stocks also make up a large portion of the S&P 500 and the Nasdaq Composite.
Tech has historically been a good sector for outperforming the stock market. However, you can also look at tech stocks to discover opportunities to outperform the tech industry. The tech sector has a few outliers that look ready for massive rallies. Investors can find these types of stocks by looking for companies that post rising revenue and net income.
The three tech stocks in this list have the potential to generate long-term returns. One of these companies is an advertising leader. The second stock offers a cloud platform with steady recurring revenue. The final stock is an AI chipmaker that’s gaining market share.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) is the leading social media company with three large platforms: Facebook, Instagram and WhatsApp. The company knows how to keep people glued to their screens, to the delight of advertisers and shareholders. It has 3.27 billion daily active users across its family of apps. That’s a 7% YOY improvement.
Users aren’t the only thing rising at Meta Platforms. Revenue soared by 22% YOY to reach $39.1 billion. Meanwhile, net income jumped by 73% YOY to $13.5 billion. The company’s headcount is only down by 1% YOY, so there’s more to Meta Platforms’ surging profits than firing employees. The company is also sitting on $58.08 billion in cash. It distributed $1.27 billion to investors as dividends and poured $6.32 billion into its stock buyback program.
Meta Platforms stock has outperformed the market for several years. Shares are up by 38% year-to-date and have more than doubled over the past five years. The stock only trades at a 24 P/E ratio and offers a 0.42% yield.
ServiceNow (NOW)
ServiceNow (NYSE:NOW) offers a cloud platform that helps businesses increase productivity and offer chatbots for their customers. The company’s workflows have been a massive selling point, contributing to a 98% renewal rate among its customers. ServiceNow has almost 2,000 customers with annual contracts above $1 million, and it has more than 8,100 customers. That customer base includes approximately 85% of Fortune 500 companies.
Artificial intelligence helped the company deliver another solid earnings report in the second quarter. Revenue increased by 22% YOY to reach $2.6 billion. Net income came to $262 million, resulting in a 10% net profit margin.
ServiceNow has outperformed the stock market for several years. Shares are up by 14% year-to-date and have nearly tripled over the past five years. The company is rated as a Strong Buy among 29 Wall Street analysts with a projected 11% upside from current levels. The highest price target of $935 per share implies that a 20% gain is possible.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a leading AI chipmaker that’s gaining momentum. The company generated a record $3.1 billion from its AI products and services, but that wasn’t the only good news in Q2 FY24 results. Revenue leaped by 43% YOY as the VMware acquisition continues to strengthen Broadcom’s infrastructure software business. More businesses are incorporating VMware into their software stacks to build private clouds.
Leadership felt confident to raise guidance for fiscal 2024. Broadcom is now expected to generate $51 billion in consolidated revenue. Adjusted EBITDA is projected to be 61% of total revenue. Broadcom’s 10-for-1 stock split brought more attention to the stock, but it has been a consistent outperformer. Shares are up by 31% year-to-date and have soared by more than 400% over the past five years.
A potential OpenAI partnership can open the door to more gains. It can pave the way for Broadcom to expand its market share in the AI chip industry.
On this date of publication, Marc Guberti held long positions in NOW and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.