The tech sector is booming right now.
Even as trade tensions ratchet higher, investors recognize that tech may be less susceptible to tariffs than industrials will be. Not only that, but China’s ability to react against U.S. tech companies may be limited by the country’s efforts to build its own tech industry.
Given this, investors are continuing to put their money on the tech sector.
In fact, tech stocks have been the biggest push behind the S&P 500’s 9.6% rally this year. They even pushed the Nasdaq to an all-time high yesterday, boosted primarily by Facebook (NASDAQ: FB) and Netflix (NASDAQ: NFLX) which also each hit record highs.
Speaking of FB, tech is pushing ever higher so much so that the nation’s five biggest tech stocks, including Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL), Facebook, and Microsoft (NASDAQ: MSFT), are about to top $4 trillion in collective value. That’s trillion with a T.
But there are three smaller tech stocks that investors should keep an eye on now. Here’s what you need to know about them.
PayPal (NASDAQ: PYPL)
PayPal is up nearly 17% year-to-date driven by strong revenue and earnings growth. However, PYPL is just getting started.
PayPal is a global leader in the move to digital—and, more importantly, mobile—payments. It’s technology platform includes the social payments app Venmo, and other payment services that enable customers and merchants to quickly and safely complete transactions. The company has a huge reach with over 225 million active accounts, and over 2.2 billion transactions per quarter in more than 200 countries.
This year, PayPal is on a role with acquisitions, helping to solidify itself as an end-to-end payments solution, and helping it get a leg up on competitors Square and Stripe.
In May, the company acquired Swedish payments company, iZettle, for a hefty $2.2 billion. The iZettle acquisition will help provide small point-of-sale devices that attach to mobile phones for businesses that are offline. These capabilities will help PayPal compete head-to-head with Square and will help it expand its point-of-sale business with small and medium retailers.
Now just this week, PayPal announced it has agreed to acquire Hyperwallet, which will enhance “PayPal’s payout capabilities, improving the company’s ability to provide an integrated suite of payment solutions to ecommerce platforms and marketplaces around the world,” according to a press release. Once this deal closes, PayPal will have access to localized, multi-currency payment capabilities in more than 200 markets.
In addition to its multiple disbursement options, Hyperwallet gives PayPal an impressive client roster that includes Home Away, Expedia, and Stella & Dot.
The company plans to spend up to $3 billion in each of the next three to five years on acquisitions that will help it get a return with more lucrative clients, an expanded global footprint, and flexible merchant technology that can be further expanded via PayPal’s development tools.
Seagate Technology (NASDAQ: STX)
Seagate is the second biggest manufacturer of hard disk drives (HDDs) in the U.S.
Shares of Seagate have risen by nearly 39% year-to-date, which has caught many by surprise as the most logical argument for the company this year was for it to match the broader market’s growth while continuing to deliver its outsized dividend yield, which currently sits at over 4%.
Even with its strong rally, the stock still trails the market on a three-year basis. While demand for HDDs for personal computers and laptops has waned with the shift to solid-state drivers (SSDs), enterprise customers have sent the stock soaring as HDDs continue to be used in data centers and with cloud computing, two areas that are experiencing rapid growth.
In the last reported quarter, in fact, revenue from enterprise customers was 44% of total revenue, up considerably from 37% in the same quarter the year prior.
Even with its rally in recent months, the stock is still cheap trading at just 12 times estimated forward earnings.
Nutanix (NASDAQ: NTNX)
Nutanix is a California-based cloud software company that’s up 69% year-to-date.
In its last reporting, the company reported revenue of $289.4 million, up 41% from $205.7 million a year prior.
This year, Nutanix has gained exposure from several new services and tech upgrades which should encourage investors. Recently, the company announced new enterprise cloud platform-as-a-service (PaaS) offerings designed to “streamline and automate database operations so database administrators (DBAs) can focus on business-driving initiatives,” according to a press release.
Analyst Ittai Kidron of Oppenheimer has a bullish price target of $70, or up nearly 21% from today’s price of $58, saying “We believe the vision and product road-map are differentiated and will support a long runway of high growth (note ~40% CAGR in management’s $3B/FY21 billings target).”