Technology stocks offer investors the promise of growth in ways that few other sectors can. After all, tech is synonymous with innovation that spawns new products, services, and features.
The Morningstar US Technology Index has returned 42.22%, while the Morningstar US Market Index has returned 29.43% during the trailing one-year period through Dec. 17, 2024.
The tech stocks that Morningstar covers look 6.4% overvalued as a group, but there are still opportunities to be found in the sector.
10 Best Tech Stocks to Buy Now
The stocks of these technology companies with Morningstar Economic Moat Ratings are the most undervalued according to our fair value estimates as of Dec. 17, 2024.
1 - Sensata Technologies ST
2 - STMicroelectronics STM
3 - Nice NICE
4 -Lyft LYFT
5 - NXP Semiconductors NXPI
6 - Endava DAVA
7 - Infineon Technologies IFNNY
8 - Uber UBER
9 - Adobe ADBE
10 - Microchip Technology MCHP
Here’s a little more about each of the best technology stocks to buy, including commentary from the Morningstar analyst who covers the stock. All data is as of Dec. 17, 2024.
Sensata Technologies
• Morningstar Price/Fair Value: 0.51
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Scientific and Technical Instruments
Trading 49% below our fair value estimate, narrow-moat Sensata Technologies tops our list again as the best tech stock to buy now. The firm is a global supplier of sensors for transportation and industrial applications. We think Sensata stock is worth $58 per share.
We think Sensata Technologies is a differentiated supplier of sensors and electrical protection, predominantly for the automotive market. The firm has oriented itself to benefit from secular trends toward electrification, efficiency, and connectivity. Despite the cyclical nature of the automotive and heavy vehicle markets, electric vehicles and stricter emissions regulations provide Sensata the opportunity to sell into new sockets, which has allowed the firm to outpace underlying vehicle production growth by about 4% historically. We think such outperformance is achievable over the next 10 years, given our expectations for a fleet mix shift toward EVs and Sensata’s growing addressable content in higher-voltage vehicles.
In our view, Sensata’s ability to grow its dollar content in vehicles demonstrates intangible assets in sensor design, as it works closely with OEMs and Tier 1 suppliers to build its products into new sockets. We also think the mission-critical nature of the systems into which Sensata sells gives rise to switching costs at customers, leading to an average relationship length of roughly three decades with its top 10 customers. As a result of switching costs and intangible assets, we believe Sensata benefits from a narrow economic moat and will earn excess returns on invested capital for the next 10 years.
Over the next decade, we expect Sensata to focus on organic growth in EVs and increasingly electrified industrial applications. The firm has historically been an active acquirer but is focusing on organic investment, reduced leverage, and increased shareholder returns in the medium term, of which we approve. The firm’s ability to grow content in EVs and outperform underlying global automotive production are the primary drivers of our investment thesis.
William Kerwin, Morningstar Analyst
STMicroelectronics
• Morningstar Price/Fair Value: 0.59
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Semiconductors
STMicroelectronics is a chip supplier for the automotive and industrial industries. The chipmaker is trading 41% below our fair value estimate of $44 per share.
STMicroelectronics is one of Europe’s largest chipmakers and holds one of the broadest product portfolios in the industry. The company has made structural improvements to its product mix and gross margin profile, which has allowed it to carve out a narrow economic moat. We think ST has some promising growth opportunities on the horizon in microcontrollers and automotive products, including silicon carbide-based semiconductors.
ST didn’t always have the best track record, regularly failing to earn robust profitability a decade ago owing to investments in money-losing digital chip businesses and share loss in other chip products, among other stumbling blocks. It has turned around nicely as it exited these businesses and reduced its investments in various digital chips. Nonetheless, it is still in some highly competitive segments of the chip industry, such as commoditylike discrete chips that carry lower margins than analog chips and microcontrollers from US-based peers. We anticipate strong competition from Chinese firms in these areas in the years ahead but think ST’s reliability will still give it a leg up on these upstarts.
Still, ST’s leading technologies and strong position in the automotive market are reasons to be optimistic about the future, with especially promising opportunities in silicon carbide-based power products. The automotive industry is focused on safer, greener, smarter cars, which is leading to increased electronic content per vehicle. Broad-based chipmakers like ST stand to profit from greater demand for advanced infotainment systems, battery management solutions, and sensors associated with new safety features like blind-spot detection. Broad-based microcontroller sales also appear to be a nice growth avenue.
We anticipate decent growth and profitability improvement out of ST. However, we see wider moats and even more attractive product mixes and margin profiles across several pure-play US-based analog chipmakers we cover.
Brian Colello, Morningstar Strategist
Nice
• Morningstar Price/Fair Value: 0.65
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow
• Industry: Software—Application
Software application company Nice earns a narrow economic moat rating while serving the customer engagement and financial crime and compliance markets. This undervalued tech stock is trading at a 35% discount to our fair value estimate of $290 per share.
Nice provides cloud and on-premises software solutions that primarily serve the customer engagement market as well as the financial crime and compliance, or FC&C, market. The majority of revenue is generated in the US, but international expansion has become a bigger priority.
The customer engagement segment contributes around 80% of company revenue, which includes Nice’s nascent public safety business. CXone, Nice’s flagship customer engagement product, is a cloud-native contact center as a service, or CCaaS, platform that delivers a seamless solution combining contact center software and workforce engagement management. CXone is an industry-leading product that will become increasingly critical for enabling omnichannel interactions amid a move to digital-first customer engagement. With only 15% to 20% of contact center agents in the cloud, including minimal from the enterprise market, the residual opportunity is significant. Consequently, we expect strong mid-term growth as customers transition to the cloud.
The company earns about 20% of its revenue from its FC&C business, which represents cloud-based risk management, fraud prevention, anti-money-laundering, and compliance solutions. We expect that the increasing cost of compliance, the digitalization of financial-services firms, the disruption of digital assets, and the explosion of data will accelerate the cloudification of the financial-services industry. Nice now has cloud-based solutions to serve organizations of all sizes, including X-Sight for the enterprise market and Xceed for the small- and medium-sized market.
For its 2022-26 strategic cycle, Nice is targeting double-digit total revenue growth, more than 80% of total revenue from cloud products, and a non-GAAP operating margin above 30%.
Rob Hales, Morningstar Senior Analyst
Lyft
• Morningstar Price/Fair Value: 0.70
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Software—Application
We think Lyft, the second-largest rideshare application company in the US and Canada, is undervalued at its current share price of $20. The affordable tech company is trading at a 30% discount to its fair value estimate.
In the US market, Lyft has emerged as the number-two ride-sharing player, a position we think it will keep for years to come. It is currently having difficulty maintaining its market share against the market leader, Uber, in pursuing riders in a highly lucrative addressable market (including taxis, ride-sharing, bikes, and scooters). In our view, Lyft warrants a narrow economic moat rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which we think can drive the firm to profitability and excess returns on invested capital.
From a strategic standpoint, Lyft is well on its way to becoming a one-stop shop for on-demand transportation. It has tapped into the bike- and scooter-sharing markets, which we think will be worth over $12 billion by 2029, growing 7% annually. Lyft also appears to be aggressively pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm to expand its margins; without drivers, it could recognize a bigger chunk of the fare as net revenue. In contrast to Uber, Lyft is not focused on food transportation or logistics. We like Lyft’s relatively narrower focus on consumer transportation, but note that Uber has an edge over Lyft in terms of an earlier start, higher market share, and a stronger network effect around its services. In addition, unlike Uber, Lyft’s lack of revenue diversification won’t soften the impact of exogenous shocks like covid.
We believe Lyft may need to acquire riders more aggressively via lower pricing. However, we don’t think this is a death knell for future profitability. Compared with Uber, Lyft has fewer riders on its platform and fewer rides taken because it is focusing mainly on the US market; however, it may be able to avoid some bumps on the road toward GAAP profitability, including the international regulatory-related ones that may require additional costs.
Malik Ahmed Khan, Morningstar Analyst
NXP Semiconductors
• Morningstar Price/Fair Value: 0.73
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Wide
• Industry: Semiconductors
Trading 27% below our fair value estimate, NXP Semiconductors is an undervalued tech stock with a wide moat. This firm is the leading supplier of high-performance mixed-signal products. We think shares of NXP stock are worth $300 per share.
NXP Semiconductors is one of the largest suppliers of semiconductors for the automotive market and a significant player in the analog and mixed-signal chip markets generally. We believe the company has a strong position in the automotive, industrial, mobile, and communications infrastructure markets through a combination of switching costs and intangible assets. Although the company sells into cyclical industries, the strength of these competitive advantages gives us confidence that it will generate excess returns over the cost of capital over the next decade and beyond.
The merger of Freescale and the former NXP in 2015 led to a powerhouse in automotive semiconductors, which makes up more than half of the company’s total revenue. Like many of its chipmaking peers, NXP is well positioned to benefit from safer, greener, smarter cars in the years ahead. It is among the market leaders in automotive semis, especially in microcontroller units, or MCUs, which serve as the brains of a variety of electronic functions in a car. We’re optimistic about NXP’s development of products used in active safety systems, such as 77-gigahertz radar modules and battery management systems in upcoming electric vehicles, most notably from Volkswagen.
Yet, NXP’s prospects are also bright in its industrial and Internet of Things segment, thanks to its legacy strength in MCUs and embedded processors, along with its development of newer crossover MCUs that combine some of the benefits of each.
In communications infrastructure, NXP should remain a key supplier of power amplifiers for 5G wireless infrastructure equipment. Finally, NXP’s mobile wallet solutions should remain the industry’s gold standard and the backbone of mobile payment technologies offered by Apple, Google, and others.
Brian Colello, Morningstar Strategist
Endava
• Morningstar Price/Fair Value: 0.73
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Software—Infrastructure
IT services company Endava is trading 27% below our fair value estimate. We think this narrow-moat company is worth $42 per share.
Endava, based in the UK, is an IT services company focused on providing digital transformation and engineering services. It generates revenue mainly by charging clients on a time-and-material basis for services such as consulting/advice, customized software development and integration, and quality assurance and testing. Endava is highly exposed to the financial-services sector, with nearly half of its revenue generated from the sector. Within financial services, Endava is known for its expertise in payments and private equity.
Like many of its peers, Endava’s core strategy is to land and expand, which means securing big clients and growing revenue in those relationships by increasingly providing these clients more services. Endava’s 10 largest clients account for around a third of group revenue with the largest, Mastercard, contributing around 10%. Mastercard has been a client for over 20 years.
Endava concentrates on the financial services and technology, media, and telecom industries. The company aims to diversify its industry exposure by securing new clients from new verticals. In particular, Endava is targeting clients in retail and healthcare, given its current expertise is most transferrable to these areas.
Similarly, the company is geographically concentrated with around 33% of revenue generated in the UK and around 26% generated in continental Europe. To diversify, Endava is primarily growing its business in North America.
Endava’s delivery model is based on agile project management from employees in nearshore locations, which it plans to expand. To best serve its clients' unique digital transformation goals, the flexibility from the iterative nature of agile project management is effective. Furthermore, the nonstandardized nature of these projects requires constant dialogue and interaction between Endava and its clients, which means having delivery teams with similar time zones to its clients (nearshoring) is best to deliver the project successfully in a timely manner.
Endava is striving to return organic revenue growth to around 20% per year with a relatively stable adjusted-profit-before-tax margin of 20%.
Rob Hales, Morningstar Senior Analyst
Infineon Technologies
• Morningstar Price/Fair Value: 0.75
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow
• Industry: Semiconductors
Infineon Technologies develops automotive and power semiconductors. Infineon stock is trading at a 25% discount to our fair value estimate of $46 per share.
Infineon is a leading broad-based European chipmaker, with significant exposure to secular growth drivers in the automotive chip sector. Infineon should emerge as a leading supplier for electric vehicles and active safety systems used in cars, with increasing exposure to car “infotainment” systems. However, like most chipmakers, Infineon’s business remains highly cyclical as demand rises and falls with the health of its various end markets.
Looking at the automotive chip market, electric vehicles and cars with advanced powertrain technology and safety systems require a variety of sensors and power voltage chips supplied by firms like Infineon. Silicon-carbide-based, or SiC-based, semis, used to handle higher voltages and improve the range and efficiency of EVs, are a particularly attractive opportunity for Infineon but also for its rivals. Infineon’s exposure to power semis also allows it to benefit from trends in the electronics industry toward power conservation, not only in more efficient devices like industrial drives but also in green energy solutions like solar panels and even artificial intelligence. Infineon is also a leader in chip card and security products, such as chips for chip-and-pin credit cards.
Nonetheless, Infineon’s product lines still face formidable competition. Many other large semiconductor firms also focus on power semiconductors and have similar products. The Chinese government is also focused on building up an ecosystem of emerging power chipmakers. Further, Infineon focuses on discrete power products rather than analog power management integrated circuits. While the former products are valuable to customers, the latter of which we view as more complex products allow leading analog firms (such as several wide-moat names we cover) to enjoy stronger pricing power and relatively higher returns on invested capital. Infineon also has a hefty manufacturing capacity for its products, which may lead to a higher fixed-cost structure and may cause significant margin compression when supply far exceeds demand.
Brian Colello, Morningstar Strategist
Uber
• Morningstar Price/Fair Value: 0.76
• Morningstar Uncertainty Rating: Very High
• Morningstar Economic Moat Rating: Narrow
• Industry: Software—Application
Uber is an undervalued tech stock, trading at a 24% discount to our fair value estimate of $80 per share. The company provides ride-sharing and delivery services, earning a narrow economic moat rating.
Uber has become the largest on-demand ride-sharing provider in the world (outside of China). It has matched riders with drivers completing trips over billions of miles and, at the end of 2023, had 150 million customers using its ride-sharing or food delivery services at least once a month. In light of Uber’s network effect between riders and drivers, as well as its accumulation of valuable user data, we believe the firm warrants a narrow moat rating.
Uber helps people get from Point A to Point B by taking ride requests and matching them with drivers available in the area. Uber generates gross booking revenue from this service (the firm’s mobility segment), which is equivalent to the total amount that riders pay. From that, Uber keeps what remains after the driver takes their share.
As the pandemic spurred growth in demand for delivery services, Uber’s business is now more diversified. The delivery segment remains resilient despite the receding pandemic while the ride-sharing business continues to rebound and grow impressively.
We view Uber as a leader in a fast-growing ride-sharing market, which we expect will reach more than $600 billion in total (excluding China) by 2028. The firm faces stiff competition from players such as Lyft (mainly in the US). While Uber no longer operates in China, it does compete with Didi in other regions around the world. Globally, the market remains fragmented, and Uber competes with many local ride-sharing platforms and taxis. But we expect the firm to remain the leader in this market as its network effect grows.
Malik Ahmed Khan, Morningstar Analyst
Adobe
• Morningstar Price/Fair Value: 0.77
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Software—Infrastructure
Wide moat company Adobe rejoins our list as one of the best tech stocks to buy right now. The shares of this software infrastructure firm look 23% undervalued relative to our $590 fair value estimate.
Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The firm has added new products and features to the suite through organic development and bolt-on acquisitions to drive the most comprehensive portfolio of tools used in print, digital, and video content creation. The December 2021 launch of Adobe Express helps further broaden the company’s funnel, as it incorporates popular features of the full Creative Cloud but comes in lower cost and free versions. The 2023 introduction of Firefly marks an important artificial intelligence solution that should also attract new users. We think Adobe is properly focusing on bringing new users under its umbrella and believe that converting these users will become more important over time.
CEO Shantanu Narayen provided Adobe with another growth leg in 2009 with the acquisition of Omniture, a leading web analytics solution, that serves as the foundation of the digital experience segment that Adobe has used as a platform to layer in a variety of other marketing and advertising solutions. Adobe benefits from the natural cross-selling opportunity from Creative Cloud to the business and operational aspects of marketing and advertising. On the heels of the Magento, Marketo, and Workfront acquisitions, we expect Adobe to continue to focus its M&A efforts on the digital experience segment and other emerging areas.
The Document Cloud is driven by one of Adobe’s first products, Acrobat, and the ubiquitous PDF file format created by the company; it is now racing to become a $4 billion business. The rise of smartphones and tablets, coupled with bring-your-own-device and a mobile workforce, has made a file format that is usable on any screen more relevant than ever.
Adobe believes it is attacking an addressable market well in excess of $200 billion. The company is introducing and leveraging features across its various cloud offerings (like Sensei artificial intelligence) to drive a more cohesive experience, win new clients, upsell users to higher-price-point solutions, and cross-sell digital media offerings.
Dan Romanoff, Morningstar Senior Analyst
Microchip Technology
• Morningstar Price/Fair Value: 0.78
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Wide
• Industry: Semiconductors
Closing out our list of the best tech stocks to buy right now, Microchip Technology specializes in microcontroller units, semiconductors that drive a varied range of mechanical products. Shares of this semiconductor company look 22% undervalued relative to our $75 fair value estimate.
Microchip Technology is a leading supplier of microcontrollers, or MCUs, which are semiconductors that act as the brains in a wide variety of common electronic devices, from garage door openers to thermostats to power tools and all types of products in between. We view Microchip as one of the best-run firms within the chip space and like the firm’s ability to generate free cash flow under virtually any economic scenario.
MCUs essentially recognize inputs, execute a program, and send an output. MCUs are often accompanied by analog chips that process real-world inputs such as temperature and pressure so that, for example, a thermostat can recognize the current temperature and tell the MCU so that it can decide whether to turn the heating unit on or off.
The businesses of MCUs and analog chips have many desirable features. Neither type of chip is overly dependent on leading-edge designs, so capital investments tend to be relatively low. These chips are selected based on performance rather than price because they make up only a tiny portion of a product’s overall cost. Customers tend to be loyal, and chips have long product lives because switching to a competing MCU could involve redesigning the entire end product. Thus, MCU and analog firms can maintain high margins and returns on invested capital.
Microchip’s historical strength has been the 8-bit MCU segment. These chips tend to be used in a wide range of simpler electronic products, and as a result, Microchip benefits by not being overly exposed to a single technology segment or customer. Microchip has done well in the more advanced 16- and 32-bit MCUs, and its analog chip business has grown at a nice pace both organically and based on prior acquisitions.
Overall, we foresee healthy long-term, secular demand for Microchip’s products. As more and more electronic devices become “smarter” and connected to the internet, Microchip’s MCUs and analog chips stand to benefit.
Brian Colello, Morningstar Strategist
How to Find More of the Best Technology Stocks to Buy
Investors who would like to extend their search for the best tech stocks can do the following:
• Review Morningstar’s comprehensive list of technology stocks to investigate further.
• Use the Morningstar Investor screener to build a short list of technology stocks to research and watch.
• Read the latest news about notable technology stocks from Morningstar technology analyst Dan Romanoff.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.