It’s been a tough year for stock investors, particularly for those in the tech space. The bear market has ravaged tech names, destroying the stocks of both good and bad companies. On the plus side, that’s got investors on the hunt for tech stocks to watch in 2023.
The reason for that is simple.
Despite the pain of 2022, this year’s downturn of stocks will ultimately create long-term gains for patient investors. The S&P 500 has delivered annual gains in 80% of the years over the last eight decades. Because of that track record, it’s a good idea to own equities.
While some of these stocks are enduring their worst selloffs in a decade (or more), their businesses remain relatively healthy. Or at least, the long-term trajectory of their businesses is still fine.
We want to buy solid businesses at great prices, and thanks to the stock market decline of 2022, we have “great prices.” Now let’s find some of the top tech stocks to watch in 2023.
|GOOGL, GOOG||Alphabet||$89, $88|
|AMD||Advanced Micro Devices||$64|
Tech Stocks to Watch: Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a premiere tech giant and is one of three US companies that sport a market capitalization north of $1 trillion. There’s a reason why the company is so valuable.
Microsoft holds a dominant position in various categories within tech, including software, PCs, enterprise, cloud, and gaming. In all of those sectors, its presence is impossible to ignore.
At its recent low, the stock was down 39% from its all-time high after suffering its worst peak-to-trough decline in a dozen years. Despite the turmoil that other other tech companies are suffering, though, MSFT’s business should remain relatively steady.
Analysts, on average, are calling for 7% revenue growth this year, then double-digit-percentage growth for three straight years after that. MSFT’s earnings should continue to grow at a solid clip as well. Alongside the growth, MSFT also boasts a more powerful balance sheet, higher cash flows, and more elevated operating margins than any of the FAANG names.
So if Microsoft stock makes new lows in 2023, investors should consider buying it on weakness.
Tech Stocks to Watch: Alphabet (GOOGL)
The search-engine king has a fortress balance sheet, with $166 billion of cash and short-term investments. Further, it generated free cash flow of $62.5 billion over the last 12 months. And it controls the two most popular websites in the world: Google.com and YouTube.com.
GOOG stock has immense value after the shares suffered a peak-to-trough decline of 45% heading into today.
Can the shares drop much further? I don’t know if Alphabet will decline 50% from its all-time high, but if it does, the stock will retest the pre-Covid highs that it reached in 2020 and really become a bargain for long-term investors.
While analysts’ mean estimate calls for its earnings to dip 16% in 2022, the shares currently trade for less than 19 times that outlook.
At some point, we have to accept that the next 6 to 12 months could indeed get worse for Alphabet. However, all that bad news will be priced into the shares eventually because digital-ad spending will not fall forever. And when there’s even a whiff of a sustainable rebound in digital ads, Alphabet’s shares will fly higher.
Advanced Micro Devices (AMD)
From their all-time highs, Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) had very similar declines. But recently, the rebounds of their stocks have been drastically different. Not too long ago, Nvidia stock was up 73% from its October low, while AMD’s recent high left it only 45% above its low point of the second half of the year.
Further, AMD is nearing a retest of its lows, while Nvidia is still up considerably from its bottom. If Nvidia was on the verge of retesting its 52-week lows, I would likely consider recommending it over AMD. As it stands, though, AMD is a bit more attractive at this point.
AMD CEO Lisa Su has gone to great lengths to improve AMD’s financial situation. The company has bolstered its margins and profit and is now generating strong free cash flow. Consequently, the shares trade at just over 18 times analysts’ average 2022 earnings estimate. If AMD retests the 2022 low, it will trade at less than 16 times the mean outlook.
For long-term investors, AMD is definitely one of the tech stocks to watch next year if the selling pressure on it keeps up. Also remember that while analysts’ 2023 earnings and revenue estimates for AMD have taken a hit, the average estimate still calls for both metrics to rise next year.
On the date of publication, Bret Kenwell held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.