Many tech companies are starting to report first-quarter results, and they have all indicated that tariffs are causing some headwinds on the horizon, but it’s not as bad as some feared. Still, none of these stocks have taken off like rocket ships and many still look like solid bargains.
If you’re looking to invest in tech stocks this month, I’ve got three worth picking up right now. All three have already informed investors about how Q1 went.
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1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM) is the world’s largest chip foundry. It manufactures chips for companies that cannot do so themselves. That’s pretty much every big tech company, as it makes more sense to design the chips and outsource the fabrication to TSMC than to build up and maintain those capabilities in-house.
Because TSMC works with most big tech companies, it has an unparalleled vision into the market’s future, as these chip orders are placed years in advance. Over the next five years, TSMC expects AI-related chips to grow at a 45% compound annual growth rate (CAGR), with its overall revenue growth nearing a 20% CAGR.
That’s a bold projection, but many investors are worried that tariffs could impact TSMC’s business. However, semiconductors are currently exempt from tariffs, and TSMC’s CEO, C. C. Wei, has stated that the company hasn’t seen any demand shift due to tariffs.
TSM PE Ratio (Forward) data by YCharts
Despite that positive note, the stock still trades at 18.6 times forward earnings. That’s cheaper than the S&P 500 (SNPINDEX: ^GSPC), which trades at 21.1 times forward earnings.
With TSMC expected to grow much faster than the S&P 500 over the next five years, I think it’s a no-brainer buy right now.
2. Meta Platforms
Meta Platforms (NASDAQ: META) is the parent company of social media sites like Facebook and Instagram, and gets the vast majority of its revenue from advertising. This is concerning some investors, as advertising spending is an area most companies pull back on during an economic downturn. As demand decreases for ads, the price per ad falls, which hurts advertising-focused businesses like Meta.
However, Meta has been deploying AI to improve its ad performance, which allows it to charge higher prices for ads because they’re more effective. This could offset some of the demand downturn, as AI may be able to pinpoint which viewers still have expendable cash even in an economic downturn.
Regardless, Wall Street analysts expect 14% revenue growth this year and 13% next year, indicating that even if a downturn is imminent, Meta will still post solid growth.
Meta has tackled the AI transformation head-on and is one of the leaders in what it means to transform a company to be AI-first. I think that will pay off massively for shareholders, and investors should scoop up shares in May to take advantage of it.
3. Amazon
Amazon (NASDAQ: AMZN) may be a surprising addition to this list of best buys for May. It’s a company that’s squarely affected by China tariffs, as a large chunk of the goods sold on its online store come from China. However, that’s the wrong way to view this investment.
While Amazon’s online stores division may generate the most revenue, it doesn’t generate the majority of profits. Commerce businesses are known to have razor-thin margins, but Amazon has boosted its margin profile by building up two other businesses with strong margin profiles: cloud computing and advertising.
Amazon Web Services (AWS) is Amazon’s cloud computing business, and despite generating just 17% of revenue over the past 12 months, it accounts for 59% of its operating profits. This means investors should look more toward how AWS is doing versus Amazon’s commerce business. In Q1, AWS revenue rose 17% year over year while profits increased 23%. There’s still monster demand for cloud computing capacity, so this growth is expected to continue.
Unfortunately, Amazon doesn’t break out its advertising segment’s operating margin, but it does disclose its revenue and growth. In Q1, advertising services saw 18% growth to $13.9 billion. That’s about half the size of AWS, but it likely produces a similar margin to AWS, as advertising-focused businesses like Meta Platforms have strong operating margins. If it has the same margin profile as AWS, these two segments would account for over three-fourths of Amazon’s profits.
So, as long as these two segments are doing well, Amazon’s profits will continue to grow. These two are expected to perform well over the foreseeable future, making me a buyer of Amazon stock.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keithen Drury has positions in Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
