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Tech stocks have generated impressive returns for investors over the past few decades. For proof, just look at the Technology Select Sector SPDR Fund (XLK), an exchange-traded fund that tracks the S-generation sector.
XLK’s functionality is largely driven by large-cap generation stocks like Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Alphabet (GOOGL), and Meta Platforms (META), all members of the Magnificent 7. Those blue chips have been supported by transformative trends in cloud computing, synthetic intelligence (AI), cellular generation, and the Internet of Things (IoT).
Given those successes, investors would likely wonder whether a continued strategy of investing in the tech sector’s most productive stocks will continue to be profitable. The answer is not simple, as the investment landscape is subject to unforeseen changes. With interest rates returning to more popular levels, the explosive expansion rates of technology corporations may also begin to lose steam.
“Investors will most likely know upon their return that a giant component of the data generation sector is experiencing a cyclical expansion rather than a secular expansion,” says Jordan Irving, portfolio manager at Glenmede Investment Management LP.
If so, a prudent inventory assortment becomes an essential tool for investors looking to capitalize on expansion opportunities. Fortunately, there are effective strategies for investors to examine and identify the most productive technology stocks to buy. Here are 3 to consider.
The total addressable market (TAM) is the overall opportunity for spending or benefiting from a product or service. This serves as a metric to assess the expansion prospects of generation investments. The higher the TAM, the better, as it suggests enough cash to drive the expansion of that specific product or service.
But what size is enough? Although there is no absolute figure, a TAM of at least $20 billion is used as a benchmark. For example, if a company captures a 5% percentage of TAM for that product or service, that would generate $1 billion in sales ($20 billion multiplied by 0. 05%).
To find data in a TAM, you can search the web for companies such as Gartner, Canalys, Statista, and International Data Corporation (IDC). Although they rarely charge for comprehensive reports, search summaries include existing spend amounts and expansion estimates. .
The most promising TAMs are those that trace transformative potential. Take the case of Netflix (NFLX) and its foray into streaming. When Netflix switched to subscription streaming from its DVD rental service, there was no information about this sector because the market was too new. .
But one way to evaluate TAM is to look at overall entertainment spending. In 2009, this amounted to a whopping $1. 3 trillion, according to a study by PricewaterhouseCoopers.
In other words, this is a great opportunity for Netflix. And, of course, the company benefited greatly from it. NFLX stakeholders have also been handsomely rewarded. A $1,000 investment in Netflix inventory in 2009 is now worth more than $120,000.
Navigating a giant TAM comes with a caveat: you have to face fierce competition. That’s why investors in the most productive tech stocks want to examine and locate the companies that offer the most attractive price proposition to customers.
Once again, Netflix is a classic example. In 2010, the company established a transparent strategy to seize the opportunity in the streaming market. He highlighted the complex broadband infrastructure, which can be accessed from various devices.
Then there is the heavy investment in original content. This technique has paid off, as evidenced by its 20 million subscribers in 2010, which validates its business model. And in its latest earnings report, Netflix claims that the number of paying subscribers reached a record 260. 8 million.
Salesforce (CRM) is an example of how to find the most productive tech stocks to buy. Co-founder and CEO Marc Benioff has revolutionized the tech industry with the software-as-a-service (SaaS) style. This innovation replaced the entrega. de software, allowing for immediate deployment and scalability by allowing users to use the software directly over the Internet. This meant avoiding installation issues and minimizing the need for maintenance. Notably, this style also ensures a steady flow of profits.
Salesforce’s strategy has been incredibly rewarding for its investors. The company, which valued its initial public offering at $11 in June 2004, saw its percentage value rise to an all-time high of $285 in January 2023. And overall, Dow Jones shares have averaged a 23. 7% annual return since trading began.
Widespread skepticism about Amazon. com (AMZN) in its early years due to heavy losses and the fierce festival of established corporations like Barnes
This cynicism is not unique to Amazon. In fact, it’s not an unusual thread for all the now prominent tech stocks, such as Alphabet, Apple and Nvidia. These corporations have prospered because their leaders have challenged the prestige quo.
Alphabet’s Google has been working to refine its search features and monetize clicks, following the then-popular portal approach of its competitors. Apple has chosen to expand its proprietary platforms and invest in providing unprecedented user experiences.
Nvidia expected the impact of AI early and identified the need for specialized chips, effectively adapting its GPUs (graphics processing units) to the AI revolution. This pivot included the progression of a software system. It was an ambitious and unconventional move for a hardware-focused company, but it created a powerful and comprehensive ecosystem.
Investors who don’t know how to find the best tech stocks to buy will need those who have a lot of skepticism towards them. The presence of skeptics can be an indicator of a company’s commitment to innovation and creativity, essential ingredients for long-term good luck and shareholder value.
Tom Taulli has been developing software since the 1980s, when he was in high school. He has sold his applications to publications. While in college, he founded his first company, focused on developing online learning systems. He later founded other companies, adding Hypermart. net, which was sold to InfoSpace in 1996. At the same time, Tom wrote articles for online publications such as Bloomberg, Forbes, Barron’s and Kiplinger. He has also written books, including Basics of Artificial Intelligence: A Non-Technical Introduction. He can be reached on Twitter at @ttaulli.