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Canaan Inc., a maker of bitcoin mining equipment, tops the list for stocks offering the best value in the tech sector heading into March 2023. In the growth category, solar firm JinkoSolar Holding Co. Ltd. leads the way, while chip testing provider Aehr Test Systems is the tech stock with the most momentum over the past year.
Data emerging in February 2023 showed that inflation remained persistent, suggesting that the Fed may need to stay aggressive in its monetary policy moves. Since tech companies are sensitive to higher interest rates, stocks in the sector stumbled in February, with the tech-heavy Nasdaq declining 2.6% for the month.
Tech stocks, represented by the Technology Select Sector SPDR Fund (XLK), have lost 8% in the past year, compared with a 5% drop in the Russell 1000 Index. Despite the challenging environment, the companies listed here are leading the tech sector in terms of the best value, fastest growth, and most momentum. All data are as of Feb. 23, 2023.
Best Value Tech Stocks
Value investing is a factor-based investing strategy that involves picking stocks that you believe are trading for less than what they are intrinsically worth, usually by measuring the ratio of the stock’s price to one or more fundamental business metrics. A widely accepted value metric is the price-to-earnings (P/E) ratio.
Value investors believe that if a business is cheap compared with its intrinsic value (as measured by its P/E ratio, in this case), then its stock price may rise faster than that of others as the price comes back in line with the worth of the company. These are the tech stocks with the lowest 12-month trailing P/E ratio.
| Best Value Tech Stocks | |||
|---|---|---|---|
| Price ($) | Market Capitalization (Market Cap) ($B) |
12-Month Trailing P/E Ratio |
|
| Canaan Inc. (CAN) | 2.90 | 0.5 | 1.4 |
| Daqo New Energy Corp. (DQ) | 46.42 | 3.5 | 2.2 |
| Avnet Inc. (AVT) | 45.76 | 4.2 | 5.1 |
| Arrow Electronics Inc. (ARW) | 119.39 | 7.0 | 5.5 |
| Himax Technologies Inc. (HIMX) | 7.89 | 1.4 | 5.8 |
Source: YCharts
- Canaan Inc.: The Beijing-based computer hardware firm Canaan designs and sells bitcoin mining equipment. In the third quarter of 2022, the company cut prices as demand for computing power slipped amid a prolonged downturn in crypto markets.
- Daqo New Energy Corp.: Daqo New Energy, also based in China, makes monocrystalline silicon and polysilicon, mainly solar energy applications. In December 2022, Daqo announced expansion plans for its facility in Inner Mongolia, which it expects to provide a significant boost to its polysilicon production capacity.
- Avnet Inc.: Avnet provides supply chain and logistics services, distribution, and design support for electronic components. It ships about 283 billion units annually and employs 15,300 people.
- Arrow Electronics Inc.: Based in Centennial, Colorado, Arrow Electronics offers products, solutions, and services focused on enterprise computing systems. The company reported an 8% year-over-year increase in sales in 2022.
- Himax Technologies Inc.: Himax is a fabless semiconductor company headquartered in Taiwan. The company anticipates a slump in sales in the first quarter of 2023 but believes that momentum will return in the second quarter and through the second half of the year.
Fastest Growing Tech Stocks
These are the top tech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.
Both sales and earnings are critical factors in a company’s success. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
| Fastest Growing Tech Stocks | ||||
|---|---|---|---|---|
| Price ($) | Market Cap ($B) | EPS Growth (%) | Revenue Growth (%) | |
| JinkoSolar Holding Co. Ltd. (JKS) | 53.55 | 2.7 | 1,161 | 115 |
| GlobalFoundries Inc. (GFS) | 64.43 | 3.5 | 1,413 | 14 |
| Veeco Instruments Inc. (VECO) | 21.13 | 1.1 | 1,233 | 1 |
| Sunrun Inc. (RUN) | 23.56 | 5.1 | 773 | 44 |
| Emeren Group Ltd. (SOL) | 4.61 | 0.3 | 300 | 86 |
Source: YCharts
- JinkoSolar Holding Co. Ltd.: JinkoSolar aims to cover the entire solar industry chain with its “vertically integrated” manufacturing capabilities. In its most recent earnings report, which covered the third quarter of 2022, JinkoSolar’s gross profit grew more than 10% quarter over quarter and 137% year over year.
- GlobalFoundries Inc.: GlobalFoundries manufactures semiconductors at facilities spread across three continents. In 2022, the company reported record gross margin and net income. GlobalFoundries recently announced an agreement with General Motors (GM) to support the carmaker’s plans to reduce the number of unique chips in its vehicles.
- Veeco Instruments Inc.: Veeco provides semiconductor equipment and film process equipment used in manufacturing electronic devices. The company reported full-year fiscal 2022 revenue of $646.1 million, up from $583.3 million in 2021.
- Sunrun Inc.: Sunrun develops, installs, sells, and maintains residential solar energy systems to U.S. customers including individual homeowners and commercial developers. The company’s installed solar energy capacity grew 25% year over year in 2022.
- Emeren Group Ltd.: Known as ReneSola Power until a rebranding in January 2023, solar company Emeren develops, constructs, and operates solar and energy storage projects around the world. In September 2022, the company announced the acquisition of a 50-megawatt solar farm in Branston, U.K.
Momentum investing is a factor-based investing strategy that involves investing in a stock whose price has risen faster than the market as a whole. Momentum investors believe that stocks that have outperformed the market will often continue to do so because the factors that caused them to outperform will not suddenly disappear. In addition, other investors, seeking to benefit from the stock’s outperformance, will often purchase the stock, further bidding its price higher and pushing the stock up further. These are the tech stocks that had the highest total return over the past 12 months.
| Tech Stocks With the Most Momentum | |||
|---|---|---|---|
| Price ($) | Market Cap ($B) | 12-Month Trailing Total Return (%) | |
| Aehr Test Systems (AEHR) | 32.23 | 0.9 | 175 |
| Super Micro Computer Inc. (SMCI) | 94.27 | 5.1 | 142 |
| LSI Industries Inc. (LYTS) | 14.64 | 0.4 | 120 |
| Agilysys Inc. (AGYS) | 80.46 | 2.0 | 105 |
| Shoals Technologies Group Inc. (SHLS) | 24.32 | 2.8 | 103 |
| Russell 1000 Index | N/A | N/A | -5.1 |
| Technology Select Sector SPDR Fund (XLK) | N/A | N/A | -8.1 |
Source: YCharts
- Aehr Test Systems: Aehr is a California-based company that offers systems for use in screening semiconductor chips. In its most recent financial results, Aehr reported revenue growth of 54% year over year, partly driven by testing products used in the electric vehicle (EV) industry.
- Super Micro Computer Inc.: Super Micro Computer, or Supermicro, manufactures energy-efficient servers and storage systems, providing worldwide support services. Supermicro posted 54% year-over-year revenue growth in its most recently reported quarter.
- LSI Industries Inc.: LSI is a Cincinnati-based manufacturer of high-performance LED commercial lighting solutions. LSI grew its net income 107% year over year in its fiscal second quarter of 2023, boosted by an improving sales mix.
- Agilysys Inc.: Headquartered in Georgia, Agilysis develops software for use in the hospitality industry, providing solutions for clients including hotels, stadiums, food service companies, hospitals, and universities. The company’s business is concentrated in North America, which accounted for 93% of its revenue in 2022.
- Shoals Technologies Group Inc.: Shoals Technologies provides electrical balance of systems (EBOS) equipment for the solar energy industry. Shoals achieved record annual revenue, gross profit, net income, adjusted EBITDA, and adjusted net income in 2022.
The Impact of Inflation on Technology Stocks
Technology stocks historically have underperformed other sectors during periods of rising inflation. Conversely, the group typically outpaces the broader market during times of falling inflation. For example, the technology bull market between 2009 and 2021 coincided with an annualized historically low inflation rate of 1.7%. However, the tech sector led broad market declines in 2022 amid rising inflation, which reached a 40-year high of 9.1% in June.
Why are technology stocks so sensitive to inflation? It all relates to interest rates. Rising inflation indicates that the Federal Reserve will likely increase its federal funds rate to taper demand. Higher rates affect technology companies in two ways. First, consumers and businesses will have less income to buy products and services, which has an effect of slowing corporate earnings. Second, technology companies borrow heavily to fund startup costs, patents, and innovation expenses, and the cost of servicing that debt increases when interest rates rise.
The opposite happens when inflation declines. The Fed will likely lower interest rates then, which spurs consumer demand and reduces technology companies’ borrowing costs.
Advantages of Technology Stocks
Investing in Innovation: Investing in technology stocks allows investors to back revolutionary ideas that have the potential to improve people’s lives. Technology companies of all sizes continually push boundaries to be first to market with game-changing technology, whether it be Apple Inc. (AAPL) with a new health feature for its iWatch or a startup developing a game-changing semiconductor for the automotive industry.
Growth Potential: Technology stocks offer the potential for sizable gains, with investors usually prepared to pay a premium for future growth. For instance, as of March 1, 2023, the technology sector traded at 27.8 times earnings. By comparison, the energy and financial sectors had price-to-earnings (P/E) ratios of 7.1 and 14.7, respectively. Although the biggest gains can be found in small-cap technology stocks, even mega-cap tech titans such as the original FANG members—Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Alphabet Inc. (GOOGL)—had an annualized return of 20.8% over the past decade as of March 1, 2023.
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