The internet specifically, and technology broadly, continues to have a profound impact on society and consumer behavior. There have been major shifts in how we communicate with each other, how we consume information, and how we transact, to name three examples. Investors are smart to look for ways to gain exposure in their portfolios.
Tech stocks have generally performed very well in the past decade. And now is a good time to put some money to work in this sector. Investors should consider buying these two dominant firms in April while they both trade more than 20% off their respective all-time highs.
Unstoppable competitive strengths
The top two tech stocks investors might want to scoop up this month are Alphabet (GOOGL -1.85%) (GOOG -1.92%) and Meta Platforms (META -3.54%). One important reason why comes down to their unstoppable competitive strengths.
A network effect is arguably the most powerful competitive advantage. And these two companies both possess this important trait.
YouTube, the popular streaming service owned by Alphabet, gets better as more people spend more time watching content. This activity incentivizes content creators to make more videos. Consequently, this attracts more eyeballs and attention.
Google Search also has a network effect. People need to access the growing amount of information on the internet. More search queries allow Alphabet to constantly improve its algorithms, creating a better experience that leads to more searches. As a result, advertisers find the platform valuable.
Meta has a whopping 3.35 billion daily active users among its social media apps. As more people join, there are exponentially more connections that can be made, which makes the various apps more valuable to everyone involved.
These network effects are supported by the ability to collect vast amounts of data, which is another competitive strength. Unless rivals come along with offerings that are magnitudes better, it’s almost impossible to dethrone the positions that Alphabet and Meta have built.
Pristine financials
Technology is constantly changing. By owning companies in a strong financial position, investors can at least have some peace of mind that risk is minimized. Alphabet and Meta are in an elite category.
As of Dec. 31, Alphabet had $85 billion of net cash on the balance sheet, while Meta had $49 billion. This demonstrates their ability to easily cover all of their financial obligations. What’s more, both companies are incredibly profitable, generating copious amounts of free cash flow that’s used for share buybacks and dividends.
They’re also able to invest aggressively in artificial intelligence (AI). Alphabet (estimated $75 billion capital expenditures in 2025) and Meta ($60 billion to $65 billion) are going all-in on the new tech revolution, hoping to create exciting new features for their users and advertisers.
Of course, critics will argue that Alphabet and Meta are spending way too much money on AI-related investments, which have uncertain payouts. However, I think it’s better for these businesses to focus heavily on AI, and accept if it doesn’t work out, than to underinvest and completely fall behind competitors. Perhaps it’s best to give these management teams the benefit of the doubt.
Trading off their peaks
Macro concerns, particularly around tariffs and worries about a pending recession, have supported higher levels of volatility for stocks this year. Even though Alphabet and Meta are two great businesses, they haven’t been immune from the ups and downs.
This creates a compelling buying opportunity. As of April 14, Alphabet trades at a forward P/E ratio of 17.8. Meta is a bit more expensive at a 21.4 multiple. Nonetheless, these are attractive valuations for two of the highest-quality companies in the world.
Alphabet and Meta are two tech stocks to buy in April.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.