Robinhood (HOOD 4.44%) investors have a reputation for buying meme stocks and cryptocurrencies, presumably because they're fishing for quick gains instead of long-term returns. The average Robinhood account was also only worth $2,803 in the brokerage's latest quarter, and some investors might think that's not enough cash for a serious investment.
But that's simply not true. With $3,000, it would arguably be wiser to buy shares of promising stocks in the cloud, cybersecurity, and chipmaking sectors, which all could experience explosive growth over the next few decades, instead of diving headfirst into speculative investments. Here are three solid tech stocks that you can buy and hold for the long term: Twilio (TWLO 1.47%), Palo Alto Networks (PANW 0.91%), and Wolfspeed (WOLF 5.55%).
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1. The cloud play: Twilio
Twilio's cloud-based platform handles integrated text messages, voice calls, and other communication features for mobile apps. Building those features from scratch can be time-consuming, buggy, and difficult to scale, but developers can now outsource those services to Twilio's usage-based platform with a few lines of code.
Many people might be unfamiliar with Twilio's brand, but it powers many popular apps from behind the scenes. For example, it enables Airbnb's guests to contact their hosts and Lyft's passengers to reach their drivers. It also provides text message notifications to DoorDash customers regarding their orders.
Twilio's growth has decelerated since its public debut, but it still expects its organic revenue to grow at an average annual rate of about 30% through 2024. Analysts expect its reported revenue to rise 36% this year and another 27% in 2023, which are pretty high growth rates for a stock that trades at just three times this year's sales.
Twilio trades at a discount to many of its cloud-based peers because it's still deeply unprofitable. Its gross margins have also been squeezed by higher carrier fees and a higher mix of lower-margin international revenue in recent quarters. But despite those challenges, Twilio believes it can reverse that decline and expand its non-GAAP (generally accepted accounting principles) gross margins from the low 50s to above 60% over the long term.
If Twilio maintains its target revenue growth rate while stabilizing its gross margins, its battered stock, which has plummeted more than 80% over the past 12 months, could mount a stunning comeback.
2. The cybersecurity play: Palo Alto Networks
Palo Alto Networks initially rose to prominence as a supplier of next-gen firewall appliances. But over the past few years, it expanded beyond the saturated on-site appliance market by investing heavily in cloud-based security services and AI-powered threat detection tools. Today, Palo Alto generates most of its growth from these NGS (next-gen security) services.
Palo Alto's balanced mix of legacy and next-gen cybersecurity services enables it to consistently generate double-digit billings and revenue growth. It expects that streak to continue with 20%-21% billings growth and 25% revenue growth in fiscal 2023, which started at the beginning of August.
Palo Alto's scale has also enabled it to stay profitable on a non-GAAP basis. It expects its non-GAAP earnings per share (EPS) to grow another 24%-26% in fiscal 2023, and for its GAAP EPS to finally turn positive for the full year.
Palo Alto's stock isn't cheap at 59 times forward earnings and eight times this year's sales, but it's very reasonably valued relative to its industry peers. For example, Palo Alto's cloud-native rival CrowdStrike (CRWD 2.03%) is growing a lot faster, but it's still unprofitable by GAAP measures and trades at 18 times this year's sales. Therefore, investors looking for a cybersecurity play that provides an attractive blend of growth and value should pick up some shares of Palo Alto today.
3. The chip play: Wolfspeed
Wolfspeed, the chipmaker formerly known as Cree, is a leading producer of wide-bandgap (WBG) semiconductors, which are produced with silicon carbide and gallium nitride materials. WBG chips can operate at higher voltages, temperatures, and frequencies than traditional silicon chips, which makes them ideal for short-length LEDs, lasers, 5G base stations, and military radars. Many electric vehicle makers have also started using silicon carbide to produce their batteries and powertrains.
Wolfspeed believes the secular transition toward more energy-efficient silicon carbide chips across multiple industries will fuel its long-term growth, and it recently opened the world's largest 200mm silicon carbide plant to support those plans. Since Wolfspeed manufactures all of its chips in the United States, it will also likely benefit from the recent passage of the CHIPS and Science Act, which provides big subsidies and tax breaks to domestic chipmakers.
Wolfspeed's revenue rose 42% to $746 million in fiscal 2022, which ended in June, as it opened its new 200mm plant and sold more chips to the auto, industrial, and energy markets. Its net losses also narrowed significantly by both GAAP and non-GAAP measures.
Analysts expect its revenue to continue rising by over 40% annually in both fiscal 2023 and 2024 as the market's demand for WBG chips remains red-hot, while the broader semiconductor market cools off. Its stock certainly isn't cheap at 13 times this year's sales, but its long-term growth potential might easily justify that premium valuation.
