Most tech investors are following some flashy trends right now, from the boom in cybersecurity spending to the megatrend of cloud computing to emerging intelligence technologies.
There’s good reason for all the attention on these big-picture trends, of course, since the narratives are compelling and the gains for select stocks have been impressive. But quietly, the rather boring but equally powerful subsector of high-tech hardware has had its share of big winners — including stocks up as much as 10 times the roughly 6% return for the S&P 500 SPX, +0.15% year-to-date.
The technicalities of companies that rely on the sale of chips, semiconductors and related components make them hard for many investors to get excited about. But the big profit potential right now shows these hardware plays are assuredly worth a look in 2018
Here are five such top stocks to consider:
Advanced Micro Devices Inc.’s AMD, -0.08% stock price has surged nearly 150% so far in 2018, notching its highest level in 12 years thanks to impressive momentum in both its fundamentals and its share price.
Thanks in part to brisk growth in its data-center chip sales, revenue leapt more than 50% in AMD’s most recent quarter. As the dust settled, however, Wall Street doubled down on its bullish outlook for the stock, with analysts at Cowenprojecting continued success vs. competitors like Intel Corp. INTC, -0.50% and Rosenblatt Securities more recently raised its price target to $30 even after this big run.
Read: AMD short sellers gutted by ‘stealthy short squeeze’
AMD is the tech tortoise that shows slow and steady can indeed win the race. Bears have predicted its demise for years, most recently in 2015 when the company’s product lines were behind the times and tech trends looks to disrupt this chip maker in a big way. But as recent performance shows, it can be dangerous to bet against a sleepy hardware player like AMD just because of the latest fashionable headlines.
Read: Interview with AMD’s Su on change in foundry, its roadmap and new head of client-compute business
Investors who have stuck with Micron Technology, Inc. MU, -0.03% have seen plenty of volatility in the last several years. Shares traded over $35 at the end of 2014 before plunging to a low of about $10 in 2016, when weak demand and oversupply brutalized the stock. The stock has been on a tear in the last year or so, powering all the way to $60 in early January, its highest levels since the dot-com days. Shares have now settled up roughly 400% from those 2016 lows.
Though the stock has admittedly pulled back a bit more recently, the fundamentals show that this chip maker is definitely on the right track — and as MarketWatch’s Therese Poletti pointed out after the company’s latest quarterly earnings report, Micron continues to prove the doubters wrong in a big way. Most recently, those earnings showed a 40% surge in revenue and profit that more than doubled the prior year’s total.
Speaking of stocks that continue to prove naysayers wrong, Seagate Technology PLC STX, +0.02% is one of those stocks that often gets branded as a high-yield value trap not worth the time of true the traders. Among the recent haters are analysts at Goldman Sachs, who downgraded the hard-drive manufacturer to sell on fears that a cyclical bump for the company had run its course as more modern hardware and cloud solutions come into favor.
Well, despite a modest one-day drop in immediate response to the call, Seagate is up more than 10% from that Goldman note. That’s in large part because the company topped earnings and revenue estimates in its most recent earnings report, but also because a generous yield of 4.5% and total year-to-date gains of over 30% make it hard to bet against this boring but highly profitable tech stock.
It’s easy to say that the best days of Nvidia Corp. NVDA, -0.14% are behind it, after the fast-growing chip maker has seen its share price explode 10-fold in about three years. However, there is still room to run, even after gains of about 40% since Jan. 1 have powered the stock to yet another all-time high.
This, despite the warnings of short sellers at Citron that the stock was bound to roll over after earnings; indeed, despite a miss in its cryptocurrency mining segment, the chip maker beat on every other metric. While there was a brief selloff in overreaction to the news, shares quickly recovered to set a new high and remain up double-digits in the last four weeks thanks in large part to these earnings.
Folks who think Nvidia is bound to tumble just because it’s a hardware stock that has to manufacture physical goods simply don’t get it, because best-in-class chips coupled with growing demand adds up to a compelling and durable growth story.
Perhaps not as big of a name as some of the other hardware plays on this list, Pure Storage Inc. PSTG, +0.57% is no less impressive a stock, with a 60% gain since Jan. 1. That’s because this manufacturer of flash memory is at the center of many of the high-tech megatrends you hear about, from artificial intelligence to self-driving cars, only it does that rather boring but important job of providing the hardware that allows these data-heavy processes to function in an agile way.
In fact, Pure Storage has a crucial relationship with aforementioned Nvidia to deploy AI in enterprise applications. This deal provides a lot of legitimacy to an otherwise niche player with a $6 billion market cap, but it also provides serious access to growth. The company just posted a surprise profit rather than the expected loss in its latest earnings, thanks to a top-line expansion of 37% and record margins.