However, rapid innovation also causes massive disruption. Indeed, some incumbents face competition from new entrants with superior technologies. At the same time, some smaller players lack scale and distribution to challenge Big Tech. Investors know to be selective, choosing those with strategic competitive advantages or with rapidly expanding total addressable markets.
From the growing automotive semiconductor market to cloud data platforms and niche software, the following companies exemplify the pinnacle of tech evolution. Let’s dive into three tech stocks to consider adding to your portfolio.
NXP Semiconductors (NXPI)
Dutch-based NXP Semiconductors (NASDAQ:NXPI) produces semiconductors for various motor vehicle applications, including advanced driver assistance systems (ADAS), vehicle networks, secure car access, and cockpit.
Semiconductor content per vehicle is increasing due to advanced safety, connectivity, multimedia applications, and standardization of higher-end options in most vehicles. KPMG estimates that the automotive semiconductor market can grow at a 7.7% compounded AGR, reaching 200 billion by 2040.
In Q2 2023, NXPI generated over 56% revenue from its automotive segment. The company has been honored as an automotive semiconductor leader, continuing to win deals with automakers such as NIO (NYSE:NIO).
Beyond automotive, NXP is a leader in near-field communication technologies which are crucial for mobile payments and counts Apple (NASDAQ:AAPL) as a key customer.
Under its industrial and Internet of Things (IoT) segment, it provides embedded processors and MCUs for various applications. Additionally, it remains a major supplier of chips for communication infrastructure, such as amplifiers used in 5G equipment.
Although Industrial & IoT declined -19% year over year (YOY), they grew 15% quarter over quarter (QOQ). Meanwhile, automotive continued its impressive record, rising 9% YOY. It’s time to buy one of the top tech stocks at a cheap 16 times trailing earnings.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) is well-poised to capture a significant share of the cloud computing and data analytics space. Furthermore, AI applications will collect and analyze more data, presenting a tailwind.
Snowflake data lake and warehouse platform enables enterprises to create and query insights from their data. Enterprise customers are subscribing to its data analytics services for significant cost savings.
Since its public debut, Snowflake has demonstrated robust growth, compounding revenues at 82% over the last three years. In addition to acquiring new customers, it has expanded existing client relationships. The company’s net retention rate was an impressive 142% in the latest quarter, highlighting the value it delivers to its user base.
Snowflake has a massive growth runway, fostering partnerships with major cloud providers, including AWS, Microsoft Azure, and Google Cloud Platform. These relationships validate Snowflake’s value proposition and enable it to reach a more extensive customer base.
Analysts view this stock to buy as an AI beneficiary. Baird recently reiterated their outperform rating on the stock. Their $200 price target presents over 30% upside from current levels.
Roper Technologies (ROP)
After impressive Q3 earnings, Roper Technologies (NASDAQ:ROP) is a diversified software business operating in various niche markets. ROP provides specialized solutions in application software, network software, and technology. Their products are often mission-critical, resulting in a loyal customer base and recurring revenue streams.
Over the years, Roper has become a cash-generating machine through high-margin niche software acquisitions and divestitures of its less profitable industrial businesses. Notably, the company has maintained industry-leading adjusted EBITDA margins of over 40%. This cash generation provides the resources to pursue strategic acquisitions and invest in growth initiatives.
Roper Technologies reported an excellent Q3 2023, with total revenue up 16% YOY and organic revenue increasing 6%. Management continued its record of acquisitions.
“We deployed $2.0 billion toward vertical software acquisitions during the third quarter, highlighted by Syntellis Performance Solutions, which has been combined with our Strata Decision Technology business,” said CEO Neil Hunn.
Now, ROP is a high-margin software business that trades at 27x forward earnings, a reasonable multiple for one of the top tech stocks.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.