Stocks have kept investors on a roller-coaster over the last few years, but great businesses with long-term growth potential haven’t gone anywhere. Meanwhile, 2024 is already off to a strong start with the S&P 500 hitting multiple new all-time highs, perhaps a sign that investor sentiment is turning more positive after a few years of everyone holding their breath waiting for a recession to hit.
No one can precisely predict the ebbs and flows of the stock market, and if global economic conditions continue to prove bumpy, that will inevitably affect companies across a range of sectors. However, the stock market has a wonderful habit of consistently throwing off bearish periods and rising higher than before with the passage of time.
So, if you stay invested in great businesses through both the ups and downs of the market, you will experience those rocky days, but you can also benefit from the best days in the market too. And, while cryptocurrency might be a viable investment for some, you don’t need to bet on high-risk assets to build enviable returns.
On that note, let’s take a look at three tech stocks you may want to add to your portfolio as 2024 kicks off.
1. Alphabet
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is known for boasting the most popular search engine in the world, and to this day, most of its revenue comes from advertising through Google Search. In 2023, Alphabet recorded revenue of $307 billion, up 9% from 2022, and net income of $74 billion, up 23% year over year.
Even though the company makes most of its money from advertising — $66 billion of its entire fourth-quarter revenue of $86 billion came from Google advertising — subscriptions are increasingly forming a larger part of the financial picture for this business. Subscriptions now account for $15 billion in annual revenue for Alphabet, which is five times more than its subscription revenue pre-pandemic in 2019. These subscriptions come from various properties, primarily YouTube-driven, including YouTube TV, YouTube Premium, YouTube Music, and Google One.
Alphabet’s AI investments are also paying off, even though the company is just at the cusp of what these technologies could mean for the future growth of its business. The tech giant launched its latest artificial intelligence (AI) model called Gemini late last year. Gemini will have three versions, Gemini Ultra (designed for large-scale, complex projects), Gemini Pro (designed for a range of tasks of varying complexity), and Gemini Nano (designed for tasks you would perform on a mobile device like the Android).
CEO Sundar Pichai described this latest AI release in the 2023 earnings call, noting: “It’s engineered to understand and combine text, images, audio, video, and code in a natively multi-modal way, and it can run on everything from mobile devices to data centers.”
The future looks bright for Alphabet’s mainstay businesses, but tech investors many also want to capitalize on its growth trajectory in the AI revolution and beyond.
2. Apple
Apple (NASDAQ: AAPL) made headlines recently for its just-launched Vision Pro, an addition to the tech behemoth’s hardware business that runs anywhere from $3,500 to $4,000 per headset. While there may be a variety of use cases for this product in both personal and professional settings, Apple’s bread and butter is still its iPhone business.
Despite changes in consumer spending over the last few years, consumers still spent $70 billion on iPhones in the first quarter of Apple’s fiscal 2024, accounting for roughly 60% of the company’s entire net sales for the quarter ($120 billion). This helped the company reach a new all-time high for its installed base of products, which totaled 2.2 billion active devices as of the end of the quarter.
Apple’s earnings per share (EPS) hit a new all-time high in the quarter as well, totaling $2.18, a 16% year-over-year bump.
The other notable win for Apple was its Services segment, which is now the second-largest driver of revenue and hit a new all-time record in the quarter. Services revenue, which includes sources like advertising as well as subscriptions to services like Apple Music and Apple TV+, totaled $23 billion in the first quarter of Apple’s fiscal 2024. That figure was up 11% from one year ago.
Looking back over the trailing 12 months, Apple has recorded total net income of more than $100 billion. Through thick and thin, this business continues to drive meaningful growth and deliver those returns back to shareholders. If you’re on the hunt for a mainstay business to add cash to, Apple looks like a no-brainer buy.
3. Upstart
Upstart (NASDAQ: UPST) has had a rough series of quarters, as lending volume retracted in a still turbulent economic environment.
The stock is down double-digits from the start of 2024, although at the time of this writing, shares are still trading about 50% higher than one year ago. That perhaps surprising performance, given the struggles the business has been having, is partially attributable to a wave of short-selling that hit the stock last year as well as some positive market days.
As always, you need to look beyond the share price at the underlying business. Right now, it’s a tough time for most businesses with broad exposure to the lending industry, and particularly so for a company like Upstart that makes most of its money from various fees attached to originating and servicing loans.
Revenue is down and the company is not profitable right now. However, the company has still retained a competitive advantage that continued to drive lenders to join its platform despite overall declines in loan volume. In fact, Upstart has roughly 900% more lending partners like banks and credit unions using its platform now than it did when it became publicly traded just over three years ago.
Upstart’s platform doesn’t predicate loan approvals or denials on the basis of the FICO score as the traditional lending industry has often done, but around a machine learning and AI-driven model that factors in about 1,500 variables to assess consumer creditworthiness. Because this model is constantly changing and adjusting not only to the individual applicant but to the macro environment at large, loan approvals being down isn’t simply a function of the lending landscape; it’s the response of Upstart’s model to lending risk on the whole.
So, fewer applicants are being approved and the applicants who are approved are generally paying higher interest rates for loans. While Upstart has had to carry more loans than usual due to the risk of funding facing many of its partners in this environment, institutional investors and originating lenders are still purchasing the lion’s share of loans. The company is also building out its footprint in a wide range of lending areas, including auto lending and recently the mortgage lending market.
Now, 88% of all loan approvals on the platform are fully automated, a new record for the business. Upstart’s model should recalibrate in more favorable lending conditions. Risk-tolerant investors may want to scoop up a slice of this business, or at least keep a close eye on it for now.
Should you invest $1,000 in Alphabet right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rachel Warren has positions in Alphabet and Apple. The Motley Fool has positions in and recommends Alphabet, Apple, and Upstart. The Motley Fool has a disclosure policy.
3 Tech Stocks With More Potential Than Any Cryptocurrency was originally published by The Motley Fool