Innovation driven growth is the keyword when it comes to analysing the tech stocks to buy. With new technologies and ideas overpowering the existing ones, it’s impossible for tech companies to survive without investment in research and development.
Some of the biggest innovators in the technology sector already command a valuation that’s in excess of one trillion. It’s time to set target in bigger gains and scan for tech stocks to buy that can potentially reach the $10 trillion milestone.
I believe that there are several potential $10 trillion tech stocks to buy. In the next three to five years, this target can possibly be achieved. Besides investment in innovation, product diversification and a global reach are the catalysts for growth and valuation upside.
It goes without saying that the tech stocks discussed have robust cash flows. This enables big investments in R&D without any stress on the balance sheet.
Let’s discuss the reasons to be bullish on these potential $10 trillion tech stocks.
Apple (AAPL)
I can say with some conviction that Apple (NASDAQ:AAPL) will be the first company to reach the magic $10 trillion valuation. The innovator has been in a bullish mode and AAPL stock has surged by 48% for the year. Even after this rally, the stock trades at an attractive forward price-earnings ratio of 30.8.
The first thing that I want to point out is the company’s cash flow potential. For the first six months of FY 2023, Apple reported $62.6 billion in operating cash flows. The annual OCF is already above $125 billion. Further, Apple reported $167 billion in cash and equivalents. Therefore, the company has robust financial flexibility to make big investments in innovation.
Apple recently unveiled the $3,500 AR/VR headset, which is the most significant product launch in a decade. The company’s electric car’s potential launch in 2026 is also being speculated. Further, Apple is well diversified with the services and wearable segment likely to get bigger. From a regional diversification perspective, the company is focused on big markets like India.
Nvidia Corporation (NVDA)
Nvidia Corporation (NASDAQ:NVDA) has skyrocketed by almost 200% for the year. I would wait for some correction before considering exposure to this potential $10 trillion tech stock.
With the wider application of artificial intelligence, Nvidia is likely to one of the biggest beneficiaries. The company’s solutions include data center, cloud computing, robotics, high-performance computing, and self-driving vehicles, among others.
For Q1 2024, Nvidia reported robust revenue growth of 19% to $7.19 billion. The company has guided for revenue of $11 billion for Q2 2024. An important point to note is that the automotive segment revenue increased by 114% on a year-on-year basis to $296 million. With the automotive design win pipeline increasing to $14 billion over the next six years, the segment is likely to be big. Further, data center revenue growth was also healthy at 14%.
Nvidia reported operating cash flow of $2.9 billion for the quarter. This implies an annualized OCF potential of $12 billion. Given the growth trajectory, I expect OCF to swell significantly in the next five years.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) stock has also been in an uptrend with a rally of 45% for the year. It’s among the tech stocks to buy for multibagger returns as the company gradually moves towards $10 trillion in valuation.
For Q3 2023, Microsoft reported revenue growth of 7% to $52.9 billion on a year-on-year basis. Revenue from the intelligent cloud business increased by 16% to $22.1 billion. This segment is likely to remain the growth driver with Microsoft Cloud supporting the acceleration of AI across industries.
It’s worth noting that Microsoft reported operating and free cash flow of $24.4 billion and $17.8 billion respectively for Q3. Strong financial flexibility provides ample headroom for dividends, share repurchase, and acquisitions.
In January 2023, Microsoft had announced a “multiyear, multibillion-dollar investment with ChatGPT-maker OpenAI.” The company believes that the investment will help the two companies engage “supercomputing at scale and create new AI-powered experiences.” The key point here is that Microsoft will remain ahead of the curve through these investments.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.