Forget Twilio (TWLO), Buy These 3 Hot Tech Stocks Instead

Twilio TWLO has not had a great start to 2022. The stock has plunged 46.5% year to date (YTD), which has made it one of the most beaten-down stocks in the U.S. equity market.

Though Twilio’s sales have been increasing rapidly driven by increased demand for its solutions amid the pandemic-led work-from-home trend and massive digitalization of work by organizations, the company’s declining margins are making investors cautious about its growth prospects.

In such a scenario, it is prudent for near-term investors to avoid this Zacks Rank #4 (Sell) stock and instead focus on three top-ranked tech stocks — Apple AAPL, Advanced Micro Devices AMD and Synaptics SYNA.

These stocks have a favorable combination of a Growth Score of A or B, and a Zacks Rank #1 (Strong Buy) or 2 (Buy). Per Zacks’ proprietary methodology, stocks with this favorable combination offer good investment opportunities.

Before discussing these stocks, let’s delve deeper into the prime factors that are weighing on TWLO stock at present.

Twilio’s aggressive sales strategy is driving revenues but at the cost of its profitability. It should be noted that Twilio’s sales and marketing expenses soared 84% year over year to $1.04 billion in 2021. We expect the situation to remain the same in the near term, given the company’s aggressive investment strategy toward enhancing sales capabilities, thereby hampering its bottom-line results.

Furthermore, Twilio’s profitability is likely to remain under pressure at least in the near term as the company is aggressively spending on its expansion plans. The company’s gross margin contracted 500 basis points year over year to 51% in fourth-quarter 2021 mainly due to the negative impact of the shift in the international traffic mix.

The Zacks Consensus Estimate for Twilio’s first-quarter 2022 is pegged at a loss of 21 cents per share. The company had reported earnings of 5 cents per share in the year-ago quarter. The consensus mark  for 2022 is pegged at a loss of 46 cents per share, which is way higher than the loss of 25 cents it reported for 2021.

Considering the aforementioned factors, it is therefore advisable to stay away from this stock in the near term.

3 Tech Stocks Set to Earn Big in 2022

Apple: This Zacks Rank #1 company is benefiting from continued momentum in the Services segment, driven by App Store, Cloud Services, Music, advertising and AppleCare. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple’s near-term prospects are bright, driven by new 5G-supported iPhones, revamped iPad and Mac line-up of devices, healthcare-focused Apple Watch, and an expanded App Store ecosystem. Apple’s ability to attract small developers has been a key catalyst. Moreover, Apple devices continue to gain traction among enterprises.

Apple currently has more than 785 million paid subscribers across its Services portfolio. The App Store continues to draw the attention of prominent developers worldwide, helping the company offer appealing new apps that drive App Store traffic. Further, a growing number of AI-infused apps will attract more subscribers to App Store.

The long-term expected earnings growth rate for Apple is pegged at 12.5%. The stock currently has a Growth Score of A. The Zacks Consensus Estimate for fiscal 2022 earnings has moved up by a penny to $6.16 per share over the past 30 days.

Apple Inc. Price and Consensus

Apple Inc. price-consensus-chart | Apple Inc. Quote

Advanced Micro Devices: The company is riding on the robust performance of the Computing and Graphics, and Enterprise Embedded and Semi-Custom segments. AMD is benefiting from the strong sales of its Ryzen and EPYC server processors, owing to the increasing proliferation of AI and Machine Learning in industries like cloud, gaming and supercomputing.

The growing clout of 7-nanometer products in the data center vertical, driven by work-from-home and online learning trends, is a key catalyst for Advanced Micro Devices. The Xilinx acquisition will boost AMD’s data center business.

Zacks Rank #1 Advanced Micro Devices has a long-term expected earnings growth rate of 29.1% and carries a Growth Score of B. The Zacks Consensus Estimate for current-year earnings has improved 21.6% over the past 60 days.

Advanced Micro Devices, Inc. Price and Consensus

Advanced Micro Devices, Inc. price-consensus-chart | Advanced Micro Devices, Inc. Quote

Synaptics: The company is benefiting from its leadership position in designing and marketing human interface solutions such as touchpads for notebook computers, capacitive touch screen controllers for handsets and biometric fingerprint sensors for mobile devices. Continued strong demand for notebooks due to work from home and online learning is a major tailwind.

Synaptics sports a Zacks Rank #1 and has a Growth Score of B. The long-term expected earnings growth for the stock is pegged at 10%. The consensus mark for the company’s fiscal 2022 bottom line is pegged at $12.89 per share, up 15% in the past 60 days.

Synaptics Incorporated Price and Consensus

Synaptics Incorporated price-consensus-chart | Synaptics Incorporated Quote

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