Technology stocks have been harder hit in this year’s market selloff than any other class of securities. The tech-laden Nasdaq index is down 30% in 2022 and looks likely to finish the year thoroughly mauled by a bear market. While investors continue to shun high-growth tech names in favor of more cyclical consumer stocks and value plays, there is reason to believe that tech stocks could rebound and have a strong recovery in 2023. Signs are mounting that inflation is falling, the U.S. Federal Reserve has signaled that it is likely to slow its pace of interest rate hikes, and most economists expect only a short, shallow recession in the year ahead. These factors set-up technology stocks for a potential rebound in the New Year. With the bulls likely to run on Wall Street again, we offer up a list of the seven top tech stock picks for 2023.
| NTDOY | Nintendo | $10.50 |
| TSM | Taiwan Semiconductor | $79 |
| NFLX | Netflix | $306 |
| META | Meta Platforms | $114 |
| ATVI | Activision Blizzard | $76 |
| PANW | Palo Alto | $166 |
| GOOGL | Alphabet | $96 |
Top Tech Stock Picks for 2023: Nintendo (NTDOY)
Don’t forget Super Mario. Nintendo (OTCMKTS:NTDOY), the Japanese video-game giant behind titles such as Super Mario Bros. and the Legend of Zelda, has been crushing sales records around the world with its latest Pokémon games, setting the company up for strong year-end holiday sales and a robust 2023.
The Kyoto, Japan-based company said sales of its Pokémon Scarlet and Pokémon Violet games for the Nintendo Switch console surpassed 10 million units in the first three days after their launch on Nov. 18. That’s the highest sales volume for any video game released by Nintendo in its illustrious history. The latest success with Pokémon comes two months after another of Nintendo’s video games, Splatoon 3, set a domestic sales record in its home market of Japan.
The company reinvigorated its Pokémon franchise with the release of Pokémon Sword and Pokémon Shield three years ago, followed by Brilliant Diamond and Shining Pearl last year. Gamers are responding strongly to the new Pokémon Scarlet and Pokémon Violet video games that are “open-world” and allow players to explore the environment without completing missions.
Industry analysts say that Nintendo has a strong pipeline of games beyond Pokémon that includes upcoming titles such as The Legend of Zelda: Tears of the Kingdom which is scheduled for release in May 2023.
Nintendo’s stock is down 6% over the past 12 months at $10.50 per share, vastly outperforming the Nasdaq index that is down 28% in the same time period. Also, Nintendo’s stock split on a 10-for-1 basis this past September.
Taiwan Semiconductor Manufacturing Co. (TSM)
Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) is generating headlines with its plan to build not one but two high-end microchip manufacturing plants in Arizona, and to increase its investment in the U.S. to $40 billion from its initial plans for a total investment of $12 billion. The allocation by Taiwan Semiconductor is one of the largest foreign investments in American history, and the largest ever in the state of Arizona.
The company, which is headquartered in Taiwan, also plans to make more technically advanced chips in the U.S. than it originally proposed. This is all good news for the U.S. semiconductor industry and for lawmakers in Washington, D.C. who have been working to revive the domestic chip sector. In August, President Joe Biden signed the “CHIPS and Science Act” into law. The legislation included $52.7 billion of loans, grants, and other incentives aimed at attracting investment in semiconductor manufacturing in America.
Taiwan Semiconductor says its two plants in Arizona should produce enough chips to meet America’s annual demand of about 600,000 wafers once they are both operational in 2026.
Like all semiconductor companies, TSM stock has been hit hard this year by investors’ exodus from technology names. In the past year, Taiwan Semiconductor’s share price has fallen 35% to $79. The decline has brought the company’s price-earnings ratio down to an attractive 14. And shareholders also benefit from its quarterly dividend that yields 2.29%.
Netflix (NFLX)
Reports of Netflix’s (NASDAQ:NFLX) demise appear to have been greatly exaggerated. Investors who left NFLX stock for dead in the first half of the year must be kicking themselves now as the share price has rallied 55% in the past six months, rising from the ashes of a $162.71 52-week low to its current level of $303.
The rebound came after the company reported third-quarter earnings that showed it added a better-than-expected 2.41 million net new subscribers in the July through September period. The Silicon Valley-based streaming giant also reported earnings per share of $3.10, well above the $2.13 that Wall Street analysts, on average, had expected.
Heading into 2023, analysts are bullish on Netflix’s upcoming slate of programming that includes new seasons of popular shows such as The Crown, Bridgerton, and Squid Game.
Analysts are also optimistic about Netflix’s new advertising-supported streaming tier that will provide viewers who choose it with an average of four to five minutes of advertisements per hour when streaming movies and TV programs on the platform. Analysts expect advertisement revenue to bolster Netflix’s bottom line in 2023 and beyond.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) continues to attract a lot of negative media attention, most recently for its plans to lay off 13% of its staff or more than 11,000 employees. That came after the company run by Mark Zuckerberg issued third-quarter earnings per share of $1.64 versus the $1.89 that was expected, on average, by analysts. Meta’s Reality Labs unit that is responsible for developing the company’s virtual reality headsets has lost more than $9 billion this year.
Yet despite the hiccups, there are still reasons to like META stock. Currently trading at $114 per share and down 64% in the last 12 months, Meta Platforms’ stock looks like a bargain now with a price-earnings ratio of only ten. In fact, Meta’s shares are so cheap that some on Wall Street have taken to calling it a value stock. Professional and institutional investors who are on the hunt for undervalued growth stocks are buying Meta Platforms’ shares hand over fist.
Although the company continues to struggle with some external challenges that include a strengthening U.S. dollar, a slump of ad revenue, the rise of Chinese social media rival TikTok, and changes to Apple’s (NASDAQ:AAPL) privacy measures, most of these problems are expected to resolve themselves. Importantly. Meta reported a 20% operating margin and $4.4 billion of net income last quarter, showing it remains relatively healthy.
Activision Blizzard (ATVI)
This tech stock is a little tricky but could be an easy way for investors to book a 25% gain. Video game maker Activision Blizzard (NASDAQ:ATVI) has agreed to be acquired by tech giant Microsoft (NASDAQ:MSFT) in a deal priced at $68.7 billion or $95 per share.
The deal is working its way through regulatory approvals and is expected to close in autumn 2023. Currently, investors can purchase ATVI stock for $76 a share. If the acquisition of ATVI by Microsoft is approved and proceeds as planned, investors who buy Activision Blizzard stock now at $76 and then tender their shares for $95 will earn 25% on their investment. That would be a very strong return, especially in the current market.
Buying the stock of a company on expectations that it will be acquired is known in investing circles as an “arbitrage play.” And none other than legendary investor Warren Buffett has gotten in on the Activision Blizzard opportunity. Buffett holds more than 60 million shares of ATVI stock, a position that’s worth $4.58 billion, on expectations that he will tender his shares at $95 each when Microsoft successfully gains control of the video game maker.
While the acquisition has encountered regulatory hurdles in recent months, expectations are that the deal will eventually be approved and conclude on schedule. If not, shareholders will be left with stock in a leading video game company whose franchise titles include Call of Duty and Guitar Hero, and whose share price is currently undervalued. So the stock should not drop much even if the deal falls through.
Palo Alto Networks (PANW)
Cybersecurity firm Palo Alto Networks (NASDAQ:PANW) looks to have a lot of future growth potential. In a tough operating environment, the company continues to outperform. Its most recent earnings showed that the company’s sales rose 25% year-over-year to $1.6 billion, which was at the top end of the company’s guidance range.
Palo Alto Networks also lifted its guidance, saying it now expects its revenues to rise by as much as 26% this year. Forecasts for cash flow and earnings were also raised by the Santa Clara, California-based company. Palo Alto Networks has now posted back-to-back profitable quarters and many analysts see more upside ahead.
As we close out 2022, PANW stock is down 8% on the year. That’s a solid beat vis-à-vis the Nasdaq index on which it trades. Following a 3-for-1 stock split in September of this year, and currently trading at $166 a share, Palo Alto Networks stock is also at its most affordable level in several years. The current share price helps make this company a top tech stock pick for 2023.
Alphabet (GOOG/GOOGL)
It’s hard to ignore the shares of Google parent company Alphabet (NASDAQ:GOOG / NASDAQ:GOOGL) when they’re trading at less than $100. Currently changing hands at $96 and down 34% over the past 12 months, GOOGL stock has a price-earnings ratio of just 19, which is extremely cheap for a company of Alphabet’s size.
A casualty of market and economic forces, Alphabet needs online advertising revenue to rebound in order for its stock to meaningfully recover. The dearth of ad spending, particularly on YouTube, has led to several disappointing quarterly results that have pushed GOOGL stock lower. However, it would be a mistake to count Alphabet out for good.
Despite the slump in online advertisements, Alphabet still managed to post a 6% year-over-year increase in its Q3 revenue. That gain was driven largely by the 38% annualized growth of its Google Cloud division, which is red hot right now. Additionally, Alphabet maintains a stellar balance sheet. The company reported free cash flow of $16.1 billion in the third quarter, and it has $358.3 billion of total assets versus $104.6 billion in total liabilities. That’s pretty impressive.
On the date of publication, Joel Baglole held long positions in GOOGL, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.