Finding tech stocks that you trust to grow in the years to come feels a bit like an uphill battle right now. Persistent inflation, fears of a possible recession and a difficult earnings environment have all contributed to investor pessimism in the sector.
But there are good tech companies with leading positions in their respective markets that have the potential to make big investments in the years to come. That’s why The Trade Desk (TTD 1.01%) and Amazon (AMZN 0.40%) are two top tech stocks to buy in 2023 and beyond.
1. The trading desk
The Trade Desk is successfully tapping into the expanding digital advertising market and helping the industry say goodbye to online trackers known as cookies. The development of what is known as Unified ID 2.0 (UID2) by The Trade Desk has helped the digital advertising industry move away from pesky cookies that can store too much personal user data. Instead, UID2 helps online users keep more of their online data private while still allowing advertisers to serve targeted ads.
This approach has been successful so far, with large companies such as Amazon Web Services (AWS), Walt Disney, The Washington Post and fuboTV already using UID2.
In addition to its UID2 innovation, The Trade Desk is also successfully increasing ad sales on its platform. Total revenue increased 24% to $491 million in the fourth quarter. Even more impressive, full-year 2022 revenue rose 32% to $1.57 billion.
The company’s adjusted earnings also point in the right direction. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose an impressive 42% to $668 million in 2022.
It’s getting harder these days to find a tech company growing sales and profits, but The Trade Desk does it while maintaining a customer retention rate of over 95%.
The Trade Desk’s strong financial results are even more impressive given that the advertising industry has suffered of late as companies scale back spending amid fears of an economic slowdown. When the advertising industry recovers — and it always does — The Trade Desk’s position should help further tap into this massive industry, which is estimated to grow from $567 billion last year to $835 billion by 2026 .
I won’t score for originality for including Amazon on this list, but I’d be remiss if I left it out. The company is, of course, a dominant player in the e-commerce market, but it’s the company’s AWS cloud computing segment and its digital ads business that’s really impressive right now.
AWS is currently Amazon’s cash cow. While the segment’s growth has slowed somewhat from its previous meteoric pace, it’s still growing rapidly. Revenue increased 29% to $80.1 billion in 2022 and operating income increased 23% to $22.8 billion.
AWS has become the leading cloud computing service for many companies, overtaking competition from Microsoft’s Azure and Alphabet’s Google Cloud. AWS currently holds 34% of the public cloud market, Azure 21% and Google 11%.
As demand for cloud computing services increases, AWS should benefit from its leading position in the market. But investors have another Amazon business to keep a close eye on as well. Amazon’s advertising segment is a more than $30 billion annual business, and its growth over the past few years shows it’s now a top contender for advertising. Just a few years ago, Amazon was hardly one of the largest advertising companies; now it is estimated that by 2026 it will account for 13% of the digital advertising market.
With Amazon’s strong position in both cloud computing and advertising, investors have more than one way to capitalize on Amazon’s future growth opportunities.
Now be patient with the technique
The technology sector is going through a rough patch right now as the price of many technology stocks has been unpredictable lately. But the long-term potential for Amazon and The Trade Desk is still intact. Investors who are patient with these companies as they continue to grow their advertising and cloud computing businesses will likely benefit years later.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Microsoft, Trade Desk, Walt Disney, and fuboTV. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.