The Nasdaq hit new highs once again on Monday, as the familiar faces of the market’s coronavirus comeback, from Tesla TSLA to Zoom ZM continue to soar. On Tuesday, IBM IBM topped our quarterly estimates, and the Dow climbed on the back of the European Union’s $2 trillion spending package to help spur recovery from the pandemic downturn.
Wall Street remains largely determined to focus on the positive signs on the Covid-19 front. The broader don’t fight the Fed mode is also hard to ignore, and a second round of stimulus appears to be gaining traction in Washington.
At the same time, the technology sector appears to be far more immune to the economic downturn, which helps make the outsized gains from many tech firms a bit easier to comprehend.
For instance, the tech portion of the S&P 500 is projected to see its second quarter earnings sink -13% on -1% lower sales, based on our Zacks data. This compares favorably to the broader S&P 500, where total earnings are expected to tumble roughly -45% from the year-ago period on -10.5% lower revenue.
On top of that, many of the stocks that have climbed are able to function during the current stay-at-home and remote work environment, while a select few cloud firms and the likes of Amazon AMZN and Netflix outright benefit.
That said, investors might want to buy established tech stocks for safety amid continued economic uncertainty that also provide exposure to growth…
Nvidia’s GPUs have proven their strength within the expansive global gaming market for years. More recently, its move into data centers and cloud computing has wowed Wall Street. NVDA shares have soared 75% in 2020, against its industry’s 15% climb. Nvidia’s 2020 run has pushed the stock up 140% in the past 12 months, as part of 2,000% surge in the last five years.
The run has stretched NVDA’s valuation picture is a bit, but investors have been willing to pay a premium for Nvidia for years. Investors might continue to buy Nvidia for its longer-term growth outlook within cloud computing, gaming, and AI. Nvidia also pays a dividend, is part of a highly-ranked Zacks industry, and boasts a strong balance sheet. Plus, the company in April completed its $7 billion acquisition—its largest ever—of Mellanox Technologies to help bolster its data center business and future growth initiatives.
Nvidia topped our Q1 estimates in May, with revenue up 39%, driven by an 80% climb in data center revenue, which crossed the $1billion threshold for the first time. Our Zacks estimates call for Nvidia’s revenue to jump 42% and 33%, respectively in Q2 and fiscal 2021. Better still, NVDA’s adjusted earnings are projected to soar 56% and 36% during this same stretch. Peeking further ahead, Nvidia’s FY22 earnings are expected to jump another 22% higher on 18% stronger sales.
It’s hard to find a tech stock that provides more stability and safety than Microsoft. And let’s not forget about its massive growth, with MSFT up 33% in 2020 and 185% over the past three years to outpace Apple’s AAPL 155% and the tech sector’s 54%. The tech powerhouse is a leader in the booming cloud computing market and its expansion continues to drive top and bottom-line growth. On top of that, its Office offerings remain viral and it has deepened its stay-at-home space to better compete against Zoom. Plus, its next-generation Xbox is due out this upcoming holiday season.
MSFT is set to report its Q4 FY20 results after the closing bell on Wednesday, July 22. Some investors might want to wait for its guidance, but it’s worth noting that the stock has climbed following its quarterly earnings release for almost three straight years. Our current Zacks estimates call for MSFT’s adjusted Q4 earnings to pop 0.7% on 8.5% higher revenues. And MSFT’s FY20 revenue is projected to jump 12.5% and another 10% in FY21, with its adjusted EPS figures projected to surge 20% and 9.5%.
Microsoft’s is currently a Zacks Rank #3 (Hold) that rocks “B” grades for Growth and Momentum in our Style Scores system. The company’s 1% dividend yield tops the 10-year Treasury’s 0.60%. And the $137 billion in cash and equivalents that Microsoft held at the end of last quarter should help it weather the economic storm, as well as future downturns.
Adobe’s suite of subscription-based creative and design software from Photoshop to Illustrator are considered irreplaceable by many individuals, businesses, and schools. This alone helps provide a strong moat within the growing cloud space. The firm’s business-focused platforms and solutions for marketing and commerce have also grown in recent years, and its PDF and e-signature units remain important. ADBE’s Creative Cloud offerings can be viewed in a similar light to Microsoft’s Office suite, and its stock is up 38% in 2020 and 60% since mid-March.
This expansion is part of an impressive run that’s seen ADBE outclimb Netflix NFLX in the last three years. The company topped our Q2 fiscal 2020 estimates in June, with sales up 14% and adjusted earnings 34% higher. The firm’s Digital Media division jumped 18% and it bought back roughly 2.6 million shares during the period to highlight its strength at a time when the likes of AT&T T put a halt to their repurchase programs.
Adobe is a Zacks Rank #3 (Hold) at the moment that earns an “A” for Growth and a “B” for Momentum. ADBE’s fiscal 2020 revenue is projected to jump 14%, with FY21 expected to come in another 15% higher to stretch its streak of double-digit sales growth to seven years. The creative software firm’s adjusted earnings are projected to jump 24% and 13%, respectively over this same stretch.
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