Top Tech Stocks for June 2023

May 26, 2023

Daqo New Energy, Canadian Solar, and Tingo Group are the top tech stocks for best value, fastest growth, and most momentum, respectively

Smith Collection / Gado / Getty Images

Tingo Group Inc., Super Micro Computer Inc., and Aehr Test Systems are among the top-performing tech stocks this month, each providing investors with returns in excess of 300% in the past year.

The Technology Select Sector SPDR Fund (XLK), a benchmark for tech stocks, has risen about 20% in the past 12 months, outperforming the broader market amid increased interest in artificial intelligence. The Russell 1000 Index rose about 4% over the same period.

We look at the top tech stocks in three categories: the best value, the fastest growth, and the most momentum. Benchmark figures above are as of June 5, and all data below are as of June 4.

Value investing is a factor-based investing strategy that involves picking stocks that you believe are trading for less than what they are intrinsically worth, usually by measuring the ratio of the stock's price to one or more fundamental business metrics. A widely accepted value metric is the price-to-earnings (P/E) ratio.

Value investors believe that if a business is cheap compared with its intrinsic value (as measured by its P/E ratio, in this case), then its stock price may rise faster than that of others as the price comes back in line with the worth of the company. These are the tech stocks with the lowest 12-month trailing P/E ratio.

Source: YCharts

These are the top tech stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and most recent quarterly YOY earnings-per-share (EPS) growth.

Both sales and earnings are critical factors in a company's success. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with a quarterly EPS or revenue growth of more than 1,000% were excluded as outliers.

Source: YCharts

Momentum investing is a factor-based investing strategy that involves investing in a stock whose price has risen faster than the market as a whole. Momentum investors believe that stocks that have outperformed the market will often continue to do so because the factors that caused them to outperform will not suddenly disappear.

In addition, other investors, seeking to benefit from the stock's outperformance, will often purchase the stock, further bidding its price higher and pushing the stock up further. These are the tech stocks that had the highest total return over the past 12 months.

Source: YCharts

Technology stocks historically have underperformed other sectors during periods of rising inflation. Conversely, the group typically outpaces the broader market during times of falling inflation.

For example, the technology bull market between 2009 and 2021 coincided with an annualized historically low inflation rate of 1.7%. However, the tech sector led broad market declines in 2022 amid rising inflation, which reached a 40-year high of 9.1% in June of last year.

Why are technology stocks so sensitive to inflation? It all relates to interest rates. Rising inflation indicates that the Federal Reserve will likely increase its federal funds rate to taper demand.

Higher rates affect technology companies in two ways. First, consumers and businesses will have less income to buy products and services, which has the effect of slowing corporate earnings. Second, technology companies borrow heavily to fund startup costs, patents, and innovation expenses, and the cost of servicing that debt increases when interest rates rise.

The opposite happens when inflation declines. The Fed will likely lower interest rates then, which spurs consumer demand and reduces technology companies' borrowing costs.

Investing in Innovation: Investing in technology stocks allows investors to back revolutionary ideas that have the potential to improve people's lives. Technology companies of all sizes continually push boundaries to be first to market with game-changing technology, whether it be Apple Inc. (AAPL) with a new health feature for its watch or a startup developing a game-changing semiconductor for the automotive industry.

Growth Potential: Technology stocks offer the potential for sizable gains, with investors usually prepared to pay a premium for future growth.

For instance, as of June 5, 2023, the technology sector traded at almost 44 times earnings. By comparison, the energy and financial sectors had price-to-earnings (P/E) ratios of about 6 and 13, respectively.

Although the biggest gains can be found in small-cap technology stocks, even mega-cap tech titans such as the original FANG members—Meta Platforms Inc. (META), Amazon.com Inc. (AMZN), Netflix Inc. (NFLX), and Alphabet Inc. (GOOGL)—had an annualized return of almost 25% over the past decade.

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As of the date this article was written, the author does not own any of the stocks listed above.

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