American investors often stick with buying stock in American tech companies because they can be easier to research than international ones. They might also feel more comfortable investing in familiar brands like Apple, and prefer to avoid regulatory minefields that companies like those in China often face.
However, investors who shun all overseas tech stocks are missing out on some promising growth opportunities. Let's take a look at three promising international tech stocks you should consider owning a stake in: Sea Limited (SE -0.69%), Nintendo (NTDOY -1.25%), and ASML Holding (ASML 1.14%).
Image source: Getty Images.
1. Sea Limited: A Southeast Asian tech giant
With a market cap of about $145 billion, Sea Limited is Singapore's most valuable listed company. It owns Shopee, the largest e-commerce platform in Southeast Asia and Taiwan, and the mobile game publisher Garena.
App Annie ranked Shopee as the most downloaded shopping app in the world last year. It also ranked Garena's self-published battle royale game Free Fire as the world's most downloaded mobile game.
Sea's revenue soared 101% to $4.4 billion in 2020, as Shopee's e-commerce revenue jumped 160% and Garena's gross bookings increased 80%. Both segments benefited from a surge in online shopping and mobile gaming during the pandemic.
Sea also generated a positive adjusted EBITDA of $107 million for the year, versus a loss of $179 million in 2019, as Shopee reined in its losses per order and Free Fire's profitability improved. Sea isn't profitable by GAAP measures yet, but analysts expect it to post a narrower loss this year.
On the top line, analysts expect Sea's revenue to rise 90% to $8.3 billion this year. The stock trades at 17 times that estimate, which makes it cheaper than many of the market's frothier tech stocks.
2. Nintendo: Japan's iconic gaming company
The Japanese gaming giant Nintendo, which started out as a playing card company in the late 19th century, has produced market-leading gaming consoles for nearly four decades. Its first-party franchises -- which include Mario, Zelda, and Metroid -- are widely recognized across the world.
Nintendo's revenue jumped 34% to 1.76 trillion yen ($15.9 billion) in fiscal 2020 as its Switch console and software shipments both rose 37%.
Image source: Nintendo.
The pandemic generated tailwinds for both businesses as more people stayed home and played hit games like Animal Crossing: New Horizons, Mario Kart 8 Deluxe, Ring Fit Adventure, and Super Mario 3D All-Stars. Its net profit surged 86% to 480 billion yen ($4.4 billion).
However, Nintendo expects its revenue and net profits to decline 9% and 29%, respectively, this year as it sells fewer Switch consoles and games in a post-pandemic market. The ongoing chip shortage and competition from new consoles could exacerbate that pain.
However, Nintendo recently introduced a new Switch OLED model that will be launched this October. This refreshed console could attract some new gamers during the holidays, and help Nintendo tread water until it unveils its next console. When that happens, Nintendo could experience another growth spurt -- and the stock, which trades at just 17 times forward earnings, still hasn't priced in that recovery yet.
3. ASML: Europe's semiconductor gatekeeper
ASML is a linchpin of the global semiconductor market. The Dutch company is the market leader in photolithography machines, which chipmakers use to print circuit patterns onto silicon wafers. It holds a monopoly in high-end EUV (extreme ultraviolet) machines, which are required to produce the world's smallest 5nm-to-7nm chips. And its next-gen high-NA systems will be used to produce even smaller chips.
The world's three most advanced chip foundries -- TSMC, Samsung, and Intel -- all need ASML's latest systems to resolve the ongoing chip shortage. They'll need to boost their capex to manufacture more chips, and a lot of that spending will go toward ASML's photolithography machines.
ASML's revenue rose 19% to 14 billion euros ($16.6 billion) in 2020. It generated 43% of its revenue from its higher-margin EUV devices, and its net profit rose 38% to 3.6 billion euros ($4.3 billion).
Analysts expect ASML's revenue and earnings to rise 36% and 57%, respectively, this year, as foundries order more of its machines. Those are stellar growth rates for a stock that trades at 40 times forward earnings -- and I believe its irreplaceable position in the global semiconductor supply chain could justify even higher multiples over the next few years.
