Tech stocks have fallen out of favor with the market lately, but they won’t stay that way forever. The tech sector remains perhaps the single-best starting place for investors seeking companies capable of delivering explosive long-term returns. And with the tech-heavy Nasdaq Composite index down roughly 33% over the last year, you don’t have to look hard to find technology companies trading at big discounts compared to previous highs.
Still, investors will benefit from backing the best of the bunch. Here’s why these three companies stand out as my favorite tech stocks for 2023.
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1. Amazon
Macroeconomic headwinds are putting pressure on Amazon‘s (AMZN -0.79%) e-commerce business and leading to growth deceleration for its profit-driving cloud services segment, but market trends have pushed the company’s stock down to attractive levels. With the company’s stock now down 55% from its high, Amazon is valued at less than 1.7 times this year’s expected sales, and I believe that investors have an opportunity to buy a position in one of the world’s best companies at a great price.
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While high levels of inflation, rising interest rates, and the potential for a broader economic downturn could continue to pressure Amazon’s valuation in the near term, the tech giant remains fantastically well-positioned for long-term success.
The company’s massive investments in building scale and resource advantages in the e-commerce space will make it very hard for competitors to disrupt its leadership position in the category, and advancements in robotics, factory automation, and autonomous delivery should help the segment achieve improved margins in coming years.
In the meantime, the cloud computing Amazon Web Services segment should continue serving up solid growth and strong operating income even in the face of a tougher macroeconomic backdrop. Amazon also has a fast-growing digital advertising business that’s been rapidly gaining market share, and the company has shown again and again that it can drive meaningful innovation and successfully branch into new product and service categories.
2. Cloudflare
Internet communications will only become increasingly important for businesses and organizations, and services being compromised or rendered inaccessible can result in large damages and missed opportunities. Between its content-delivery-network services, cybersecurity offerings, and other foundation-level web technologies, Cloudflare‘s (NET 0.07%) software suite helps websites and applications deliver rapid performance and remain online.
Cloudflare’s services are easy to use, flexible, and highly scalable, and the business has continued to grow at an encouraging clip. The company’s revenue rose 47% year over year to reach $253.9 million in the third quarter, and the business posted best-ever operating income of $14.8 million in the period.
Right now, Cloudlfare is focused on delivering stellar sales growth, but the company is confident that it will be able to significantly increase its margins over time.With a 76% gross margin last quarter and strong demand for its services, Cloudflare looks more than capable of delivering consistent profits and strong sales growth as marketing spending comes to represent a smaller portion of revenue.
3. CrowdStrike
Even if macroeconomic headwinds go on to shape much of the broader operating backdrop in 2023, strong demand for cybersecurity services remains a safe bet. CrowdStrike‘s (CRWD 1.05%) software prevents endpoint hardware including computers, mobile devices, and servers from being used by cybercriminals as portals for breaching networks. In simple terms, these aren’t the kind of protections that businesses and institutions can afford to skimp on — and dire threats posed by a rising tide of cyberthreats have been helping CrowdStrike record stellar sales growth.
The cybersecurity specialist managed to increase sales 53% year over year to reach $580.9 million, and the business continues to record very impressive gross margins. CrowdStrike’s continued sales momentum and non-GAAP (adjusted) gross margin of 78% for its subscription services helped it record $96.1 million in adjusted net income in its last reported quarter, representing a 134% increase year over year.
Aided by an expanding product roadmap, new product initiatives, and untapped opportunities in cloud security services, CrowdStrike expects that its total addressable market will have reached $158 billion in 2026 — that’s up from $76 billion in 2023. Given these expected developments and the overall backdrop of the cybersecurity space, there seems to be a very good chance that the business will continue to post very strong sales growth for many years to come.
With industry-leading products, a promising revenue and earnings outlook, and a share price that is down some 64% from its high, CrowdStrike presents an attractive value to investors now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Noonan has positions in Cloudflare. The Motley Fool has positions in and recommends Amazon.com, Cloudflare, and CrowdStrike. The Motley Fool has a disclosure policy.
