Many market pundits were surprised by the strength of tech stocks in 2023. The Technology Select Sector SPDR Fund (NYSEARCA:XLK) soared over 55% year-to-date, despite the headwinds of higher rates. Still, if a new bull market has begun, the sector has more gains ahead.
Typically, investors see the technology sector as a growth sector. Indeed, over the past decade, it has grown earnings at a higher rate than other sector. UBS expects this trend to continue and predicts the sector will grow at a low-double-digit rate in 2024.
There are signs of a stellar 2024, with tech earnings exceeding expectations in the third quarter. Particularly, the emergence of artificial intelligence (AI) and increasing cyber threats present opportunities for earnings growth. Chief technology officers want to invest in AI to enhance customer experience and productivity. Besides, cybersecurity is a top priority, given the increase in ransom attacks.
The abovementioned themes will propel earnings growth for top tech stocks in 2024. The following companies are well-positioned to benefit. In 2023, they had solid earnings growth and will maintain that momentum in 2024.
ServiceNow (NOW)
Through the Now Platform, ServiceNow (NYSE:NOW) has become the default productivity tool for large enterprises. It offers workflow automation tools across IT, customer service, human resources and application development. As companies seek cost savings, their software-as-a-service solutions are seeing growing demand.
As of this writing, ServiceNow is a large-cap company with a market capitalization exceeding $140 billion and trailing 12-month revenues of $8.4 billion. Yet, despite its size, it is achieving incredible growth rates expected from startup companies.
In the third quarter of fiscal year 2023, it exceeded all topline growth and profitability targets. Revenue grew 27% year-over-year (YoY) and 24.5% in constant currency. Due to strong demand, management expects subscription revenue growth to remain elevated. In line with this view, management forecasts at least 25% subscription revenue growth for FY2023.
Besides, the company is finding new revenue sources. Today, it is a lead innovator in integrating AI into workflows. In Q3, it released its Vancouver Platform, introducing AI capabilities to all workflows on the Now Platform. These AI products are a new revenue opportunity to power growth in 2024.
Considering its AI products, ServiceNow is one of the top tech stocks for 2024. UBS Securities also projects more upside and has an $820 price target. It expects 2024’s revenue growth to exceed 20% and thinks shares are reasonably valued. Indeed, ServiceNow is a must-buy stock for 2024, given its solid execution.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is one of the best tech stocks for 2024 since it intersects two major trends. First, Azure is the best AI infrastructure platform, providing the computing and storage needed to train, build and deploy large language models.
The company has also been a first-mover in AI, quickly integrating the technology into its productivity tools. It launched Copilot for products like Microsoft Office, Outlook, Teams and GitHub. It also uses AI to transform other industries. For instance, Nuance Dax helps medical professionals automatically document patient interactions.
Wedbush analyst Dan Ives is bullish on Microsoft’s AI prospects and has a $450 price target. He predicts that over the next three years, most of Microsoft’s customers will adopt its AI solutions for the enterprise.
Besides AI, the firm is also a major cybersecurity player. As mentioned, ransomware attacks are increasing, leading to significant monetary and reputation losses for organizations. Now, there is even extra urgency to protect networks, applications and data due to new Securities Exchange Commission (SEC) disclosure rules.
As companies increase their security budgets, Microsoft’s security business will experience a higher growth rate. The company provides an integrated security offering in identity, compliance, device management, security and privacy. Microsoft Security generates over $20 billion in annual revenues, and more growth lies ahead.
Considering Microsoft is well-positioned in AI and cybersecurity, earnings are expected to grow in 2024. Indeed, it’s among the most resilient tech stock picks with a stable earnings outlook. Buy one of the most profitable tech stocks for gains in the new year.
Monday.com (MNDY)
This project management software company is a top tech stock for 2024. Notably, the underlying fundamentals are impressive, supporting more upside in the stock. Besides, new product launches are supporting growth.
Monday.com (NASDAQ:MNDY) is profiting from its multiproduct strategy aimed at ensuring its platform supports cross-functional collaboration for customers. The company is rapidly innovating and bringing new products to market, creating cross-sell opportunities.
With new products playing a pivotal role, Q3 fiscal year 2023 revenues surged to $189.2 million, a 38% increase YoY. Over 2,534 initial work management accounts adopted one new product in the quarter. Due to the widespread adoption of these new products, management expects a 39% to 40% revenue growth for the full year.
Still, other catalysts make Monday.com one of the top tech stocks for 2024. First, management plans to open the new mondayDB and Monday sales CRM products to all customers by the end of Q1 FY2024.
Secondly, the company is improving its Monday AI capabilities, especially the AI formula builder and the AI solution builder. So far, these solutions have generated meaningful value for customers. For instance, Formula Builder has assisted over 5,000 users in developing advanced formulas.
Lastly, the company is moving towards profitability. For instance, in Q3, the GAAP operating loss narrowed to $2.5 million from a loss of $28.2 million in the prior year’s quarter. Additionally, it recorded an impressive free cash flow margin of 34%. Management has demonstrated the ability to scale efficiently, which will help boost investor interest.
On the date of publication, Charles Munyi 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.
