The year 2020 has been quite eventful and has kept investors on their toes. The deadly pandemic, volatile stock markets, and a contested Presidential election, we have seen it all this year.
As we are nearing the end of 2020, it would be a good idea to revisit the technology sector, which has been one of key beneficiaries of the pandemic. The adjustment to the “new normal” has been possible to a great extent, because of existing and emerging technology offerings. And investors significantly rewarded the companies that played key roles in keeping people and businesses functional.
The sector is vast with diverse segments. While software companies are focusing more on software-as-a-service, chipmakers are aiming at creating GPUs for gaming and bitcoin mining, while keeping the “new normal” market in mind. At the same time, e-commerce companies and internet service providers are enjoying strong momentum as people are getting everything delivered online.
Amazon.com, Inc. (AMZN), Alphabet, Inc. (GOOGL), Taiwan Semiconductor Manufacturing Company Ltd. (TSM), and Zendesk, Inc. (ZEN) have shown their strength since the onset of the pandemic, and are well-positioned for massive growth based on their innovations.
Amazon.com, Inc. (AMZN)
AMZN, the global e-commerce leader, has had an extremely successful year so far, as the pandemic forced people to stay indoors and rely on home delivery. As the second wave of COVID-19 is around the corner, this trend is likely to continue. Besides its e-commerce business, AMZN is also positioned to gain from its online Prime Video services as more people stay home to watch entertainment.
AMZN's cloud business, AWS, continues to dominate, with a nearly 45% market share. During the third quarter that ended September 2020, AWS revenue climbed 29% year-over-year to $11.6 billion.
On November 17th, AMZN launched Amazon Pharmacy, a delivery service for prescription medicine. This new service would be offered at a discount of up to 80%, to Amazon Prime members for generic drugs, and 40% for branded medication.
AMZN’s revenue during the third quarter that ended September 2020 climbed 37% year-over-year to $96.1 billion. Meanwhile, the company’s EPS for the quarter surged 192.4% over the prior year period to $12.37.
The consensus estimate for revenue for the fourth quarter ending December 2020, $119.4 billion, indicates a 36.6% increase year-over-year. Meanwhile, the EPS for the fourth quarter is expected to be $7.09, up 9.6% year-over-year.
AMZN gained 72.4% year-to-date to close at $3,185.07 on Wednesday. During the past six months, the stock has increased 30.5%.
How does AMZN stack up for the POWR Ratings?
A for Industry Rank
B for Buy & Hold Grade
B for Overall POWR Rating.
It is ranked #14 out of 59 stocks in the Internet industry.
Alphabet, Inc. (GOOGL)
GOOGL is a global leader in the digital advertising space. As a search engine, it commands a 90% share of the global market. GOOGL also has a lot of other businesses under its umbrella. YouTube, Google Play and its Smart Home speakers are some of these services which have become indispensable as people continue to be confined at home. The company’s revolutionary businesses like Waymo, a self-driving car company, and Verily, a Life Sciences business, also have immense prospects.
GOOGL’s revenue during the third quarter that ended September 2020 jumped 14% to $46.2 billion, compared to the same period last year. Its revenue was driven by a recovery in advertising revenue. YouTube’s ad revenues climbed 32.6% in the third quarter. At the end of the third quarter, YouTube Music and YouTube Premium had a combined paid subscriber base of over 30 million. Meanwhile, the company’s EPS for the third quarter jumped 62% year-over-year to $16.40.
Analysts expect revenue for the quarter ending December 2020 to be $53.1 billion, up 15.2% year-over-year. EPS is expected to grow at 16.5% per annum over the next five years.
On a year-to-date basis, the stock rose 31.7% to end Wednesday’s trading session at $1,764.13. Over the past six months, GOOGL has climbed 24.8%. The stock is currently trading 3% below its 52-week high at $1,816.89.
It’s no surprise that GOOGL is rated a “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. Out of 59 stocks in the Internet industry, it is ranked #2.
Taiwan Semiconductor Manufacturing Company Ltd. (TSM)
TSM is a leading manufacturer and seller of semiconductors and integrated circuits across North America, Europe, Japan, China, and South Korea. Communications, industrial, consumer, computer, are the standard segments the company operates in. TSM also offers customer service, account management, and engineering services.
TSM’s board approved an investment to set up a wholly-owned subsidiary in Arizona with an overall capital of $3.5 billion. The objective behind setting up this facility is to build a $12 billion factory in the region. The production is targeted to begin in 2024. The Arizona facility would be the company’s second manufacturing site in the United States.
During the third quarter that ended September 2020, TSM’s revenue jumped 29.2% year-over-year to $12.1 billion, driven by demand for 5G smartphones, HPC, and IoT-related applications. The shipments of 5-nanometer garnered 8% of total wafer revenue, while 7- nanometer and 16-nanometer accounted for 35% and 18% of the revenue respectively, for the quarter. TSM’s earnings per ADR unit for the quarter was $0.90 per share.
Analysts expect revenue for the quarter ending December 2020 to be $12.3 billion, indicating an 18.6% gain year-over-year. Meanwhile, the EPS is likely to jump 27.4% to $0.93.
On a year-to-date basis, TSM has gained 67.8% to close Wednesday’s trading session at $97.94. During the past six months, the stock surged 95.8%.
The stock is rated a “Strong Buy” in our POWR Ratings system. It holds an “A” grade for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. TSM is also the #1 ranked stock in the Semiconductor & Wireless Chip industry.
Zendesk, Inc. (ZEN)
ZEN offers software as a service (SaaS) for organizations located across North America, Latin America, the Middle East, Europe, Africa, Asia Pacific and Australia. The company’s flagship product, Zendesk Support, is a system for tracking, prioritizing, and resolving customer support tickets across various channels. Some of the other products by the company are Zendesk Chat, Zendesk Talk, Zendesk Sell, and Zendesk Explore. The company’s products are used by over 160,000 businesses globally.
In a recent development, ZEN announced a partnership with WhatsApp to allow businesses to provide real-time support across various messaging channels across web, social media, and mobile. Through this, ZEN wants to enhance rapid engagement with customers and widespread adoption of services.
During the third quarter that ended September 2020, ZEN’s revenue surged 24.4% year-over-year to $261.9 million. The company reached a major milestone by crossing a billion-dollar annual revenue run rate during the quarter. ZEN’s loss per share expanded to $0.35 compared to $0.31 loss in the same period last year.
The consensus estimate for revenue for the quarter ending December 2020 is $277.9 million, indicating a 20.9% year-over-year increase. Meanwhile, the EPS is likely to grow at the rate of 75% per annum over the next five years. The company expects revenue for the fourth quarter to be in the range of $274 - $279 million.
ZEN surged 75.5% year-to-date to close Wednesday’s trading session at $134.52, just 0.6% below its 52-week high at $135.30. Over the past six months, the stock has risen 64.2%.
ZEN is rated a “Strong Buy” in our POWR Ratings system. It holds a grade of “A” in Trade Grade, Buy & Hold Grade, and Peer Grade and a “B” in Industry Rank. The stock is also ranked #4 in the Software - Application industry.
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AMZN shares were trading at $3,197.93 per share on Friday morning, up $12.86 (+0.40%). Year-to-date, AMZN has gained 73.06%, versus a 14.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education.4 Top Tech Stocks for December appeared first on StockNews.com