Top Tech Stocks to Consider for December Investment

As 2024 approaches its end, many investors are assessing their portfolios and contemplating necessary adjustments. A common conclusion is the need for increased exposure to the technology sector, especially considering the strong performance of key players in this field.

Take a look at Alphabet (GOOGL) and Meta Platforms (META). These leading tech companies have significantly outperformed the S&P 500 over the past five and ten years. Their consistent success is difficult to dispute.

This article will explore why Alphabet and Meta are two of the best tech stocks to buy this December.

Strong Network Effects

Alphabet and Meta boast market capitalizations exceeding one trillion dollars, largely due to their extensive economic moats. A critical factor behind their success is the network effects they leverage.

For instance, Alphabet's Google Search commands a remarkable 90% market share globally and contributes about 56% of the company's total revenue. As more people use the internet, Google becomes even more valuable, creating a self-reinforcing cycle that makes it challenging for competitors to catch up.

Similarly, Meta's suite of social media platforms has a staggering 3.29 billion daily active users, enhancing their appeal. Users are drawn to these services primarily because their friends and family use them. A new social media platform would struggle to compete with established players like Facebook, given the daunting task of attracting a user base from scratch.

In addition to network effects, Alphabet and Meta have significant advantages in data collection. Their vast reach allows them to gather insights about user behavior, informing strategic decisions and fortifying their competitive positions.

Robust Financial Performance

Both companies excel at generating impressive profits. In the third quarter, Alphabet reported an operating margin of 32%, while Meta achieved a remarkable 43%. Their ability to translate revenue into profit consistently showcases the profitability of running large-scale internet-based businesses.

Additionally, Alphabet and Meta maintain strong balance sheets with substantial net cash reserves. This financial strength positions them well, allowing for ongoing returns to investors through dividends and share buybacks without the need for raising capital under unfavorable conditions.

With these solid foundations, they can also invest heavily in emerging initiatives. Recently, both companies have focused on enhancing their artificial intelligence (AI) capabilities, ensuring they remain at the forefront of technological advancement.

Attractive Valuations

Of course, the attractiveness of a stock also depends on its valuation. Fortunately, Alphabet and Meta are currently priced reasonably. Alphabet's forward price-to-earnings (P/E) ratio stands at 23.1, while Meta's is at 27.4. Both figures are lower than the tech-heavy Nasdaq-100 index's forward ratio of 28.3, signaling a favorable entry point for investors.

Moreover, analysts forecast that Alphabet and Meta will experience annual earnings per share growth rates of 20.5% and 24.7%, respectively, from 2023 to 2026. This strong growth outlook further justifies their current valuations and underscores the potential benefits of investing in these tech stocks this December.

Disclosure: The authors have no positions in the mentioned stocks. Please do thorough research or consult with a financial advisor before making investment decisions.

stocks, technology, investment