Best Tech Stocks for May 2024

April saw a return of inflationary concerns, as Federal Reserve Chairman Jerome Powell
pared back expectations of a rate cut by this summer. The risk-off sentiment weighed negatively on tech names, leading the Technology Select Sector SPDR Fund (XLK) to give up some of its gains this year. The fund returned 38% over the past year, still ahead of the Russell 1000 Index, which notched 25% during the same period. Moreover, stalwart tech names such as Meta Platforms Inc (META) reported a weaker forward outlook that weighed heavily on its share price. It remains to be seen how the rest of the earnings season will play out, but it looks like the tech rally might be taking a pause in May.

Below is an analysis of the top tech stocks for May 2024, screened for best value, fastest growth, and most momentum. All data are current as of April 25, 2024.

Best-Value Tech Stocks

Value investing is an investing strategy that holds that investors can identify stocks that are trading below their true value. At the time the market corrects this mispricing, these undervalued names
may increase in value. Investors typically attempt to identify undervalued stocks using fundamental metrics like the price-to-earnings (P/E) ratio. Typically, a lower P/E ratio signals an undervalued stock because the company is valued less than its fundamental value. These stocks may offer a stronger return after the market adjusts.

• Yiren Digital Ltd.: Yiren Digital Ltd. offers a variety of AI-driven financial and lifestyle services in China, focusing on improving individual and business finances through personalized financial solutions and insurance. As of March 2024, the company served over 100 million borrowers, facilitating 11.6 billion RMB worth of loans on its platform in the fourth quarter of 2023.
• SurgePays, Inc.: SurgePays, Inc. is a technology and telecom company that leverages its platform to provide financial and prepaid wireless services to the underbanked through over 8,000 convenience stores across the U.S. In 2023, the company experienced significant growth, reporting a net income of $20.6 million, up from a net loss the previous year, attributing this to high revenue and gross margins, along with strategic acquisitions like Clearline Mobile, a cloud-based digital marketing platform.
• Consensus Cloud Solutions, Inc.: Consensus Cloud Solutions is a leading global provider of digital fax solutions and digital information exchange services. Its offerings include cloud faxing, digital signatures, data extraction using AI and natural language processing, with a focus on finance, insurance, healthcare and manufacturing.
  

Fastest-Growing Tech Stocks

Growth investors believe that increases in a company's revenue and earnings per share (EPS) can be an indicator of a strong business that has the potential to increase in value. However, focusing on just one or the other of these two metrics can give an incomplete picture of a company's growth potential. Circumstances unrelated to a company's fundamental business strength—such as tax law changes, mergers, or one-off gains—can skew these figures on their own.

Investopedia uses a dual-metric approach to reach a more balanced assessment of growth companies. We equally weight the latest year-over-year (YOY) percentage growth for both EPS and revenue. This approach aims to reduce the impact of those one-time anomalies to provide a better view of a company's true growth pattern and potential. Additionally, any companies with quarterly growth in excess of 1,000% are excluded as outliers.

• TeraWulf Inc.: TeraWulf is a vertically integrated bitcoin mine, operating two facilities in New York and Pennsylvania. Due to the rise in bitcoin prices, TeraWulf saw its fiscal 2023 revenues increase 360% to $69.2 million, compared to $15 million in fiscal 2022. 
• HIVE Digital Technologies.: Similar to TeraWulf, HIVE operates bitcoin mining operations in Canada and Iceland. As of March 2024, the company holds $160 million BTC on the balance sheet, averaging 7.2 BTC per day.
• SoundHound AI, Inc.: SoundHound provides cutting-edge voice AI solutions built on proprietary technology in multiple languages, serving industries such as automotive, television, the Internet of Things (IoT), and customer service. 2023 was a banner year for SoundHound, with the company achieving 47% revenue growth versus 2022, while also launching the world’s first voice assistant with integrated generative AI to go into full production with automaker Stellantis’ DS Automobiles.
  

Tech Stocks With the Most Momentum

Momentum investing is a strategy aiming to capitalize on pre-existing market trends by focusing on stocks that have outpaced their peers or the broader market on returns. This investment principal holds that stocks on an upward path are likely to continue to outperform, as long as fundamental aspects of the business, industry, or sector do not change.

Momentum investing is a common strategy applied to tech stocks because they regularly experience significant market disruptions. As companies launch new products, announce technological breakthroughs, and gain rapid popularity, investors have the potential to climb on board while these stocks are still ascending.

Here are the tech stocks with the highest total return in the last 12 months. We've excluded stocks with a share price of under a dollar.

• MoneyLion, Inc.: MoneyLion is a fintech company that offers a broad range of personalized financial products and content through its comprehensive app and platform. 2023 was an excellent year for the company, as revenues grew by 24% from the past year to $423 million, while generating EBITDA of $46 million.
• CleanSpark, Inc.: CleanSpark describes itself as “America’s bitcoin miner,” operating mining sites in Georgia and Mississippi. Like TeraWulf, CleanSpark has benefitted from the increase in BTC prices.
• NextNav, Inc.: NextNav is looking to revolutionize GPS by building a platform from scratch that can neither be jammed nor spoofed, and which allows for indoor navigation on mobile phones and urban navigation for autonomous vehicles and drones. 
  

Advantages of Tech Stocks

Growth potential

Tech stocks, particularly those in emerging areas, are known for experiencing some of the sharpest growth of any publicly traded company. Anticipating this, investors have sought periods in which the sector underperforms to invest heavily, as they expect significant growth over the long term.

But growth among tech stocks can vary dramatically. Many of the larger firms have limited growth potential because their market saturation and capitalization are already very high. Small-cap or penny tech stocks that experience technological breakthroughs or suddenly become incredibly popular may have periods of massive growth. Unusually, some of the biggest names in tech—including Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), and Alphabet Inc. (GOOGL)—have continued to grow at significant rates.

Advanced innovation

Tech trends are always changing, with companies aiming to capitalize on the latest technology and to guide and follow developments in innovation. This makes the sector primed for breakthroughs. One of the most recent major trends to sweep the tech sector has been AI-related technologies, which are increasingly integrated into companies across many industries and sectors. To the extent that some tech companies continue to play a role in making this possible, they stand to benefit from the ongoing AI trend.

Disadvantages of Tech Stocks

Fluctuations in the tech sector

Tech stocks are known for their high volatility, where rapid technological changes and competitive pressures can lead to significant price fluctuations. They often carry high valuations based on growth expectations, making them susceptible to market corrections if they fail to meet these projections. Furthermore, regulatory challenges and geopolitical tensions can impact the sector, introducing additional risks and uncertainties for investors.

Trends shift quickly

The sharp gains of many tech firms can prove tempting to investors who may not be well-versed in the technologies themselves. With rapid innovation characterizing the sector, trends and prospects shift very quickly as well. Investors who are unprepared for this pace or who lack knowledge of the fundamental strengths of different tech companies may find themselves following a trend that has already changed.

The Bottom Line

The tech sector's performance in 2024 is poised to be significantly influenced by advancements in AI, which is expected to drive long-term growth. The adoption of AI, along with ongoing digitization and cloud computing, offers promising opportunities, particularly for companies involved in semiconductor production and cloud software services.  However, the macroeconomic environment will also play a key role in determining the sector's short-term performance, with the potential for volatility depending on interest-rate policies and economic conditions​.

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As of the date this article was written, the author does not own any of the above securities.