The tech industry has a reputation for delivering significant, consistent gains over the long term, and for good reason. The Nasdaq-100 Technology Sector index outperformed the Nasdaq Composite and S&P 500 over the last decade, proving the value of holding tech stocks over many years.
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The tech market is an ever-expanding space, encompassing everything from consumer products to video games, artificial intelligence (AI), cloud computing, and much more. The constantly evolving nature of tech allows companies to profit from reliable demand for upgrades to various hardware and software products.
As a result, it's no surprise that Warren Buffett's company, Berkshire Hathaway, dedicated almost 50% of its portfolio to the high-growth industry. Meanwhile, the company's portfolio posted a nearly 20% compound annual gain from 1965 to 2023 and is now worth $371 billion.
Berkshire Hathaway's success shows it's never too late to invest in tech and profit from its long-term growth. So here are two hypergrowth tech stocks to buy in 2024 and beyond.
1. Nvidia
Chipmaker Nvidia (NVDA -1.54%) has been featured in countless headlines over the last year after becoming the poster child for a boom in AI. In 2023, the company cornered the market on AI chips, achieving an estimated 90% market share in AI graphics processing units (GPUs), while rivals like Intel and Advanced Micro Devices scrambled to catch up.
Nvidia's success in the sector has seen its earnings hit record heights from quarter to quarter, with growth showing no signs of slowing. In its fourth quarter of 2024 (which ended in January), the company's revenue increased by 265% year over year to $22 billion. Operating income jumped 983% to nearly $14 billion. The meteoric rise was primarily thanks to a 409% increase in data center revenue, reflecting a spike in AI GPU sales.
Additionally, Nvidia's free cash flow is up 430% in the last year to more than $27 billion, significantly higher than AMD's $1 billion and Intel's -$14 billion. So, despite new GPU releases from both competitors, Nvidia's head start in AI potentially pushed the company further ahead, providing it with more significant cash reserves to continue investing in technology and retain market supremacy.
Nvidia's price-to-free-cash-flow and price-to-earnings (P/E) ratios plunged in the last year, indicating its stock is at one of its best-valued positions in 12 months.
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P/E is calculated by dividing a company's stock price by its earnings per share. Meanwhile, the price-to-free-cash-flow ratio divides its market cap by free cash flow. These are helpful valuation metrics, as they take into account a company's financial health. For both, the lower the figure, the better the value.
Alongside a powerful position in a budding market like AI, Nvidia is a hypergrowth tech stock worth considering in 2024.
2. Microsoft
Microsoft (MSFT -3.21%) is easily one of the most reliable investment options in tech, having increased its dividend payout for 19 consecutive years. The company raised its cash amount to $0.75 in 2023, translating to an annual payout of $3 per share (three times what it was 11 years ago).
Consistent dividend growth reflects Microsoft's solid business model as the home of potent brands like Windows, Office, Azure, Xbox, and LinkedIn. The success of these services has granted Microsoft leading roles in operating systems, productivity software, cloud computing, and even social media.
Meanwhile, its annual revenue has risen 144% over the last decade, with operating income up 217%. Free cash flow has soared 150%, hitting over $67 billion in 2023.
Microsoft is on a promising growth trajectory. It is investing heavily in some of the fastest-growing sectors, including cloud computing and AI. The company's lucrative positions in these markets will likely see its earnings continue to soar over the long term. In fact, the tech giant hit a new height this year, surpassing Apple as the world's most valuable company by achieving a market cap above $3 trillion.
Moreover, Microsoft's earnings could hit just over $15 per share over the next two fiscal years. When multiplying that figure by the company's forward P/E of 36, you get a stock price of $561. Considering its current position, this projection would see Microsoft shares rise 33% by fiscal 2026, outperforming the S&P 500's 15% increase over the last two years.
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This, in addition to a powerful position in tech and years of reliability, means Microsoft is a screaming buy right now.
