Top Tech Stocks for May 2023

Tingo Group Inc., Aehr Test Systems, and Super Micro Computer Inc. are among the top-performing tech stocks this month, each providing investors with returns in excess of 150% in the past year.

The Technology Select Sector SPDR Fund (XLK), a benchmark for tech stocks, has risen about 12% in the past 12 months, outperforming the broader market amid increased interest in artificial intelligence. The Russell 1000 Index rose 3% over the same period.

We look at the top tech stocks in three categories: the best value, the fastest growth, and the most momentum. All data are as of May 5.

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.

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• Daqo New Energy Corp.: Daqo is a Chinese monocrystalline silicon and polysilicon manufacturer developing products mainly used in solar energy applications.
• 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. On Feb. 16, Avnet announced a first-quarter dividend of $0.29, payable on March 15. The company has consistently increased its dividend for two years.
• Himax Technologies Inc.: Himax is a Taiwanese fabless semiconductor company. Himax unveiled in late March a new chip for AI applications in low-power Internet of Things (IoT) products.
• Nokia Oyj: Nokia is a Finnish-based operator of networking infrastructure.
• Arrow Electronics Inc.: Arrow offers products, solutions, and services focused on enterprise computing systems. On March 14, Arrow Electronics announced a collaboration with semiconductor company Qualcomm (QCOM) to establish Edge Labs, an incubator for the development of edge computing and AI products.

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 1,000% were excluded as outliers.

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• Rumble Inc.: Rumble operates a "neutral" video-sharing platform it describes as being "immune to cancel culture." On March 28, Rumble announced it would add supporter badges and monthly subscriptions to its platform for $5 per month. The company's total active user base in the fourth quarter of 2022 was up nearly 150% compared to the year-ago quarter. Note Rumble doesn't have an EPS growth figure in the table above because the company reported negative EPS in the most recent quarter.
• Tingo Group Inc.: Tingo Group is a fintech company focusing on agriculture. Note Tingo Group doesn't have an EPS growth figure in the table above because the company reported negative EPS in the most recent quarter.
• The Trade Desk Inc.: Trade Desk is an advertising technology firm providing an online platform to manage video, social, mobile, and other ad campaigns.
• Grab Holdings Inc.: Grab Holdings is a Singapore-based application developer. Note Grab Holdings doesn't have an EPS growth figure in the table above because the company reported negative EPS in the most recent quarter.
• ZoomInfo Technologies Inc.: ZoomInfo offers a cloud-based sales and marketing platform that enables users to connect with their target customers.

Tech Stocks With the Most Momentum

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.

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• Tingo Group Inc.: See the company description above. The company's share price has soared since the end of March when Tingo reported increased profitability in the fourth quarter following its acquisition of Tingo Mobile.
• Aehr Test Systems: Aehr is a California-based company that offers systems for use in screening semiconductor chips.
• Super Micro Computer Inc.: Super Micro Computer, or Supermicro, manufactures energy-efficient servers and storage systems, and provides worldwide support services. In late March Supermicro unveiled SYS-751GE-TNRT-NV1, a new AI development platform released in partnership with NVIDIA Corp. (NVDA).
  
• Bel Fuse Inc.: Bel Fuse manufactures and distributes electronic components for use in many different fields, such as aerospace, military, telecommunication, computing, and transportation industries.
• First Solar Inc.: First Solar designs and manufactures photovoltaic solar power systems and solar modules. In late 2022, First Solar said it would invest $1.1 billion to build its fourth American manufacturing facility, to be located in Lawrence County, Alabama.
  

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 watch 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 May 5, 2023, the technology sector traded at 23 times earnings. By comparison, the energy and financial sectors had price-to-earnings (P/E) ratios of about 6 and 9, 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 22% over the past decade.