Technology stocks have been bludgeoned this year, and there is a good chance that the carnage may carry over to 2023. Many of the top companies in the sector are announcing huge layoffs, and that rarely happens when things are going well. Notably the best-performing tech-centric stocks of the past decade — Facebook (now Meta Platforms), Amazon, Apple, Netflix and Google (now Alphabet), the so-called FAANG stocks — have all hit the wall from a growth standpoint and are among those laying off employees.
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So what should aggressive growth investors do when it is possible that new leaders in the sector are offering some bigger and better growth potential? We decided to screen the Goldman Sachs Conviction List for the firm’s top technology ideas and found five leading companies, including one legacy heavyweight, that could be poised to lead the way next year. While all have the Buy ratings at Goldman Sachs, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Datadog

This is a name investors may not be as familiar with, but it holds tremendous upside potential. Datadog Inc. (NASDAQ: DDOG) engages in the development of monitoring and analytics platforms for developers, information technology operations teams and business users. The company’s platform integrates and automates infrastructure monitoring, application performance monitoring and log management to provide real-time observability of its customers’ entire technology stack.

Datadog announced last year the extension of Network Performance Monitoring (NPM) to Windows. Datadog NPM now monitors the performance of network communications between applications running on Windows Server and Linux, providing seamless network visibility across cloud environments, on-premises data centers and operating systems.

The analysts noted earlier this year that, based on the strength of its expanding product portfolio that addresses critical aspects of customers’ cloud migration, coupled with a solidly profitable business model that generates rising free cash flow margins alongside hyper-growth, Datadog is poised to grow into a preeminent infrastructure software business.

Goldman Sachs has a $162 price target on Datadog stock. The consensus target is lower at $109.97, and the most recent close was at $72.42.

Microsoft

This is a more conservative way for investors to participate in the massive cloud growth. Microsoft Inc. (NASDAQ: MSFT) develops, licenses and supports software, services, devices, and solutions worldwide. The company operates in these three segments.

The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Skype for Business; Skype, Outlook.com, OneDrive and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions.
Microsoft’s Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center and related Client Access Licenses; GitHub provides a collaboration platform and code hosting service for developers; Nuance provides health care and enterprise AI solutions; and Azure, a cloud platform. It also offers enterprise support, Microsoft consulting, and nuance professional services to assist customers in developing, deploying and managing Microsoft server and desktop solutions; and training and certification on Microsoft products.
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The More Personal Computing segment provides Windows original equipment manufacturer (OEM) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, such as volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things. It also offers Surface, PC accessories, PCs, tablets, gaming and entertainment consoles, and other devices; Gaming, including Xbox hardware and Xbox content and services; video games and third-party video game royalties; and Search, including Bing and Microsoft advertising. The company sells its products through OEMs, distributors and resellers; and directly through digital marketplaces, online stores, and retail stores.

The software giant posted first-quarter fiscal 2023 results that beat Wall Street expectations on the top and bottom lines, though cloud revenue came in lower than expected and the company’s quarterly guidance fell short of expectations as well. Microsoft plans to moderate its operating expense growth in the next few quarters until demand heats back up.

Microsoft stock comes with a 1.11% dividend. Goldman Sachs has set a $315 price target. The consensus target is $296.91, and shares last closed at $238.73.

Qualtrics

This more off-the-radar idea has among the biggest upside potential of all the Goldman Sachs Conviction List stocks and is a great idea for investors who are more aggressive. Qualtrics International Inc. (NYSE: XM) operates an experience management platform to manage customer, employee, product and brand experiences worldwide. It was founded in 2002 and is headquartered in Provo, Utah. Qualtrics is a subsidiary of SAP America.

The company offers the Qualtrics Experience Management Platform, a system of action that guides users with specific instructions for improvement and automated actions to improve experiences, as well as for listening, understanding and taking action on both structured and unstructured data.

Qualtrics also provides professional services that primarily consist of research services, through its DesignXM, which allows customers to gain market intelligence, as well as implementations, configurations and integration and engineering services to help customers deploy its XM Platform.

The analysts view Qualtrics as a market leader in customer experience, a segment of the customer relationship management total available market that is growing in importance as customers leverage new pools of interactions data to optimize their own unit economics. Analysts expect Qualtrics to benefit from net new budget as well as consolidation of spend from a long tail of fragmented vendors as a function of its technology breadth and depth, with key differentiators being its ability to process unstructured data and its integration with other action-oriented workflow tools.

The $18 Goldman Sachs price objective compares with the $16.28 consensus target for Qualtrics stock and the most recent close at $10.10.

This company was an innovator in customer relationship management software. Salesforce Inc. (NYSE: CRM) provides customer relationship management technology that brings companies and customers together worldwide. Its Customer 360 platform empowers its customers to work together to deliver connected experiences for their customers.
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The company’s service offerings include:

• Sales, to store data, monitor leads and progress, forecast opportunities, gain insights through analytics and relationship intelligence and deliver quotes, contracts and invoices
• Service, which enables companies to deliver trusted and highly personalized customer service and support at scale.

Its Service offerings also comprise flexible platform that enables companies of various sizes, locations and industries to build business apps to bring them closer to their customers with drag-and-drop tools; online learning platform that allows anyone to learn in-demand Salesforce skills; and Slack, a system of engagement. Further Service offerings include:

• Marketing, which enables companies to plan, personalize and optimize one-to-one customer marketing journeys
• Commerce, which empowers brands to unify the customer experience across mobile, web, social and store commerce points
• Tableau, an end-to-end analytics solution serving various enterprise use cases
• MuleSoft, an integration offering that allows its customers to unlock data across their enterprise

Salesforce provides its Service offerings for customers in financial services, health care and life sciences, manufacturing and other industries.

The company also offers professional services and in-person and online courses to certify its customers and partners on architecting, administering, deploying and developing its service offerings. The company provides its services through direct sales and consulting firms, systems integrators and other partners.

The Goldman Sachs target price of $300 towers above the $194.25 consensus target. Salesforce stock was last seen changing hands at $129.44 a share, so hitting the Goldman Sachs target would be a 132% gain.

This was one of the hottest names last year, and it could be poised for a huge 2023. ServiceNow Inc. (NYSE: NOW) provides enterprise cloud computing solutions that define, structure, consolidate, manage and automate services for enterprises worldwide.
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The company operates the Now platform for workflow automation, artificial intelligence, machine learning, robotic process automation, performance analytics, electronic service catalogs and portals, configuration management systems, data benchmarking, encryption, and collaboration and development tools.

ServiceNow also provides information technology (IT) service management applications; IT service management product suite for enterprise’s employees, customers and partners; IT business management product suite; IT operations management product that connects a customer’s physical and cloud-based IT infrastructure; IT Asset Management to automate IT asset life cycles; and security operations that connects with internal and third party.

In addition, it offers governance, risk and compliance products to manage risk and resilience; human resources, legal and workplace service delivery products; safe workplace applications; customer service management products; and field service management applications. Further, it provides App Engine products; IntegrationHub enables applications to extend workflows; and professional, industry solutions, and customer support services.

The company serves government, financial services, health care, telecommunications, manufacturing, IT services, technology, oil and gas, education and consumer products through direct sales team and resale partners. It has a strategic partnership with Celonis to help customers identify and prioritize processes that are suitable for automation.

ServiceNow stock has a $640 target price at Goldman Sachs. The consensus target is $520.91, also well about the $381.86 closing share price.

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These five outstanding companies are the top picks in the technology sector at Goldman Sachs. They have dominant positions in their respective corporate silos, and all have some huge upside to the target prices. Given that more of the same trouble we have seen this year could be coming our way in January and the first half of 2023, in the form of interest rates increases, inflation and market volatility, it makes sense to scale into positions slowly.

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