Daqo New Energy Corp., a maker of silicon and polysilicon products used primarily in solar energy applications, tops the list of stocks offering the best value in the tech sector heading into April. In the growth category, 3D printing firm Nano Dimension Ltd. leads the way, while chip testing provider Aehr Test Systems is the tech stock with the most momentum.
In March, the U.S. Federal Reserve raised interest rates for the ninth time in a year. The latest increase comes in the midst of a banking crisis triggered by the collapse of tech-friendly Silicon Valley Bank and Signature Bank. Since tech companies are sensitive to higher interest rates, stocks in the sector have struggled throughout the Fed’s anti-inflation campaign.
Tech stocks, represented by the Technology Select Sector SPDR Fund (XLK), lost a tenth of their value in the past year, compared with a 14% drop in the Russell 1000 Index. Despite the challenging environment, the companies listed here are leading the tech sector in terms of the best value, fastest growth, and most momentum. All company data are as of March 21 and benchmark data are as of March 28, 2023.
Best Value Tech Stocks
Value investing is a factor-based investing strategy that involves picking stocks that you believe are trading for less than what they are intrinsically worth, usually by measuring the ratio of the stock’s price to one or more fundamental business metrics. A widely accepted value metric is the price-to-earnings (P/E) ratio.
Value investors believe that if a business is cheap compared with its intrinsic value (as measured by its P/E ratio, in this case), then its stock price may rise faster than that of others as the price comes back in line with the worth of the company. These are the tech stocks with the lowest 12-month trailing P/E ratio.
| Best Value Tech Stocks | |||
|---|---|---|---|
| Price ($) | Market Capitalization (Market Cap) ($B) | 12-Month Trailing P/E Ratio | |
| Daqo New Energy Corp. (DQ) | 49.53 | 3.7 | 2.1 |
| Avnet Inc. (AVT) | 43.29 | 4.0 | 4.9 |
| Canaan Inc. (CAN) | 2.98 | 0.5 | 4.9 |
| Arrow Electronics Inc. (ARW) | 118.63 | 6.9 | 5.4 |
| Himax Technologies Inc. (HIMX) | 7.75 | 1.4 | 5.7 |
Source: YCharts
- Daqo New Energy Corp.: Daqo is a Chinese monocrystalline silicon and polysilicon manufacturer developing products mainly used in solar energy applications. The company’s revenue fell by almost 30% from Q3 to Q4 of last year.
- Avnet Inc.: Avnet provides supply chain and logistics services, distribution, and design support for electronic components. It ships about 283 billion units annually and employs 15,300 people.
- Canaan Inc.: Canaan is a Chinese computer hardware firm that designs and sells bitcoin mining equipment. Fourth-quarter revenue of 391.9 million RMB (about $56.8 million) was about 82% lower than the prior-year quarter.
- Arrow Electronics Inc.: Arrow offers products, solutions, and services focused on enterprise computing systems.
- Himax Technologies Inc.: Himax is a Taiwanese fabless semiconductor company. Himax recently announced that it would unveil its new ultralow power WiseEye smart image sensing system in late March.
Fastest Growing Tech Stocks
These are the top tech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in a company’s success. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.
| Fastest Growing Tech Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| Nano Dimension Ltd. (NNDM) | 2.54 | 0.7 | N/A (see company description) | 646.1 |
| The Trade Desk Inc. (TTD) | 59.24 | 29.1 | 600.0 | 24.0 |
| Cambium Networks Corp. (CMBM) | 17.93 | 0.5 | 600.0 | 7.4 |
| Roper Technologies Inc. (ROP) | 430.44 | 45.7 | 568.9 | 13.9 |
| ServiceNow Inc. (NOW) | 445.46 | 90.4 | 469.2 | 20.2 |
Source: YCharts
- Nano Dimension Ltd.: Nano Dimension is a 3D printing company that offers a printer to create multilayer circuit boards as well as nanotechnology-based inks. On March 27, the company said it filed a lawsuit against Murchinson Ltd., Anson Advisors, Inc., and Boothbay Fund Management over alleged attempts to manipulate the firm’s stock price and illegally take control of the company. Note that Nano Dimension does note have an EPS growth figure in the table above because earnings were negative in the most recent quarter.
- The Trade Desk Inc.: Trade Desk is an advertising technology firm providing an online platform to manage video, social, mobile, and other ad campaigns.
- Cambium Networks Corp.: Cambium sells wireless broadband products to customers in the education, enterprise, hospitality, retail, industrial, and government sectors. Higher revenues in the company’s Enterprise and Point-to-Point products drove growth for the fourth quarter.
- Roper Technologies Inc.: Roper is a producer of pumps, fluid handling systems, medical and scientific devices, analytical instrumentation, and other industrial equipment and software. The company’s next dividend of $0.6825 per share is payable April 21 to shareholders as of April 6, 2023.
- ServiceNow Inc.: ServiceNow is a cloud computing platform focused on optimizing digital workflows and providing IT services management for enterprise clients.
Momentum investing is a factor-based investing strategy that involves investing in a stock whose price has risen faster than the market as a whole. Momentum investors believe that stocks that have outperformed the market will often continue to do so because the factors that caused them to outperform will not suddenly disappear. In addition, other investors, seeking to benefit from the stock’s outperformance, will often purchase the stock, further bidding its price higher and pushing the stock up further. These are the tech stocks that had the highest total return over the past 12 months.
| Tech Stocks With the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| Aehr Test Systems (AEHR) | 36.93 | 1.0 | 261.4 |
| First Solar Inc. (FSLR) | 209.25 | 22.3 | 170.4 |
| Super Micro Computer Inc. (SMCI) | 108.25 | 5.8 | 151.8 |
| LSI Industries Inc. (LYTS) | 13.65 | 0.4 | 123.1 |
| Impinj Inc. (PI) | 136.27 | 3.6 | 115.3 |
| Russell 1000 Index | N/A | N/A | -13.7 |
| Technology Select Sector SPDR Fund (XLK) | N/A | N/A | -9.5 |
Source: YCharts
- Aehr Test Systems: Aehr is a California-based company that offers systems for use in screening semiconductor chips.
- First Solar Inc.: First Solar designs and manufactures photovoltaic solar power systems and solar modules. In late 2022, First Solar said it would invest $1.1 billion to build its fourth American manufacturing facility, to be located in Lawrence County, Alabama.
- Super Micro Computer Inc.: Super Micro Computer, or Supermicro, manufactures energy-efficient servers and storage systems, providing worldwide support services. In late March Supermicro unveiled SYS-751GE-TNRT-NV1, a new AI Development platform released in partnership with NVIDIA Corp. (NVDA).
- LSI Industries Inc.: LSI is a manufacturer of high-performance LED commercial lighting solutions.
- Impinj Inc.: Impinj is a radio-frequency solutions company that sells radio chips, readers, antennas, gateways, and related software to customers around the world.
The Impact of Inflation on Technology Stocks
Technology stocks historically have underperformed other sectors during periods of rising inflation. Conversely, the group typically outpaces the broader market during times of falling inflation. For example, the technology bull market between 2009 and 2021 coincided with an annualized historically low inflation rate of 1.7%. However, the tech sector led broad market declines in 2022 amid rising inflation, which reached a 40-year high of 9.1% in June.
Why are technology stocks so sensitive to inflation? It all relates to interest rates. Rising inflation indicates that the Federal Reserve will likely increase its federal funds rate to taper demand. Higher rates affect technology companies in two ways. First, consumers and businesses will have less income to buy products and services, which has an effect of slowing corporate earnings. Second, technology companies borrow heavily to fund startup costs, patents, and innovation expenses, and the cost of servicing that debt increases when interest rates rise.
The opposite happens when inflation declines. The Fed will likely lower interest rates then, which spurs consumer demand and reduces technology companies’ borrowing costs.
Advantages of Technology Stocks
Investing in Innovation: Investing in technology stocks allows investors to back revolutionary ideas that have the potential to improve people’s lives. Technology companies of all sizes continually push boundaries to be first to market with game-changing technology, whether it be Apple Inc. (AAPL) with a new health feature for its iWatch or a startup developing a game-changing semiconductor for the automotive industry.
Growth Potential: Technology stocks offer the potential for sizable gains, with investors usually prepared to pay a premium for future growth. For instance, as of March 28, 2023, the technology sector traded at 29 times earnings. By comparison, the energy and financial sectors had price-to-earnings (P/E) ratios of 6.4 and 14, respectively. Although the biggest gains can be found in small-cap technology stocks, even mega-cap tech titans such as the original FANG members—Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Alphabet Inc. (GOOGL)—had an annualized return of 22% over the past decade as of March 25, 2023.
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