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3 Tech Stocks to Buy That Just Crushed Earnings

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These tech titans are the fuel for today's economy.

Third-quarter earnings season is in full swing, and many companies are reporting huge year-over-year growth figures as they lap their depressed financial results from a year ago (when the world was still largely on lockdown early in the pandemic). But not all companies are getting a boost because they were down in the dumps in 2020. Tech giants have been posting incredible returns for years, and look like they won't be slowing down anytime soon.

Three contributors think there's still plenty to like about Alphabet (GOOGL -2.25%) (GOOG -2.54%), Intel (INTC -0.91%), and Microsoft (MSFT -2.15%) after they crushed earnings. Here's why they believe they're still a buy.

Two people reviewing paperwork in front of a laptop.

Image source: Getty Images.

Google search is an unstoppable force

Nicholas Rossolillo (Alphabet): The internet search titan is knocking on the door of a $2 trillion valuation after its Q3 2021 report card -- and for good reason. Google's parent company Alphabet beat expectations during the summer months, reporting a respective 41% and 61% year-over-year increase in revenue (to $46.2 billion) and free cash flow ($18.7 billion). Bear in mind Google's core advertising business had already returned to growth mode this same period last year after a brief dip in Q2, so this isn't a simple story of a business clearing an easy hurdle from 2020.

Outside of digital ads, which remain a long-term secular growth trend, other elements of the business were firing in sync as well. "Google other" (which includes Pixel devices, subscriptions, the app store, etc.) grew 23% to $6.75 billion in sales, and Google Cloud increased 45% to $4.99 billion.  

And on the bottom line, free cash flow profit margin was 40%, a fantastic result considering this is still a growth company investing heavily to foster future expansion. Included in that overall profit margin was yet another 10-figure operating loss on "Other Bets" (Waymo self-driving cars, Verily life sciences, and other early-stage disruptive tech) of $1.29 billion in Q3.

Google remains a fantastic long-term investment story, and is fairly priced given the double-digit growth numbers the company is still consistently churning out. The stock trades for 28 times trailing-12-month free cash flow-to-enterprise value after the Q3 update. Google remains my personal favorite buy of all the mega-cap tech stocks.

Intel: Spend money now to make money later

Anders Bylund (Intel): Semiconductor titan Intel smashed the Street's earnings estimates in Oct. 21's third-quarter update. Earnings rose 54% year over year, landing at $1.71 per diluted share. Your average analyst would have settled for $1.11 per share. The company also raised its adjusted full-year earnings guidance from $4.80 to $5.28 per share. Free cash flows are now expected to stop near $12.5 billion for the full year, up from $11 billion in the second-quarter version of Intel's guidance.

The good news don't stop there. Intel has broken ground on two new chip-making sites in Arizona, laying the groundwork for a massive long-term investment in the company's physical infrastructure. Demand is strong across all of Intel's target markets, and order shipments are only held back by the same industrywide manufacturing challenges that are facing the whole semiconductor sector these days.

Yet, Intel's stock plunged on the earnings release and now sits more than 14% below the closing price on the night of the report. You can pick up Intel shares at the bargain-bin valuation of 10.7 times trailing earnings and 5.9 times free cash flows.

That's because many market makers were quick to brush off the long-term benefits of Intel's ambitious growth plans, focusing exclusively on the costly investments that will unlock those future benefits. That's a big mistake in my view, and I am sorely tempted to add a few more shares to my own Intel holdings at these inviting stock prices.

Microsoft's cloud juggernaut sees no signs of letting up 

Billy Duberstein (Microsoft): Cloud and software giant Microsoft has become so boring, what, with its 11-quarter streak of revenue and earnings beats and all!

Of course, shareholders certainly aren't bored. Neither are analysts at Citigroup, who raised their price target to a Street-high of $407 after last week's blowout earnings report, 25% higher than today's post-earnings price and a whopping 85% higher than Microsoft's stock price to start the year.

You may think of Microsoft as a conglomerate with a lot of different products: Windows, Office, Dynamics, Azure, Teams, LinkedIn, and others. Each one of those businesses is fantastic, but what really came through on the conference call with analysts is how Microsoft is now able to integrate all these tools in a powerful, unified platform that makes comprehensive cloud transformation simple and efficient.

Management calls this integrated set of tools the Microsoft Cloud, which grew 36% to surpass $20 billion in quarterly revenue for the first time last quarter. While many leading software companies offer or specialize in a few of the things Microsoft Cloud does, no one can really offer the full end-to-end platform Microsoft can. Integrating the Azure public cloud, Dynamics 365 enterprise resource planning, Office 365, Teams, cybersecurity, the low/no-code Power business intelligence and automation platform, and GitHub for developers, Microsoft Cloud is a turnkey solution that's simple for businesses to set up and use with a quick time-to-value.

With the platform now fully developed, Microsoft is tailoring its cloud to specific industries. It has already unveiled a healthcare-specific cloud, which should only be enhanced by the pending acquisition of Nuance Communications, an artificial intelligence platform for healthcare and other industries. Industry-specific clouds for financial services and manufacturing are set to be unveiled this week. Microsoft even introduced Microsoft Cloud for sustainability, which helps organizations monitor their carbon footprint across their entire business. In the age of ESG investing, that should be a hit as well.

Can Microsoft keep it up? I think it can. The Microsoft Cloud spans Microsoft's intelligent cloud and business process software segments. The intelligent cloud segment is now not only the fastest-growing segment, but has become the largest segment as well. Intelligent cloud grew 31% last quarter, compared with overall company growth of 22%. Since the intelligent cloud now makes up a larger part of the business and sees no signs of letting up, Microsoft looks set to maintain an astoundingly high level of growth for such a large company; oh, and profit margins are expanding too, so profit growth should even exceed revenue growth.

So while the stock may look somewhat pricy at 40 times earnings, given the prospects for a decade of profitable growth, I think Microsoft can still be bought even at these frothy post-earnings levels. It's a core large-cap holding for any investor today. 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Nicholas Rossolillo owns shares of Alphabet (C shares). His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Microsoft. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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