While the stock market has done much better in 2023, the truth is that just 10 companies have made up 95% of the gains in the S&P 500, and nine of the 10 heaviest-weighted stocks in the Nasdaq 100 have accounted for almost all its gains. What do these stocks have in common you may be wondering? They are almost all technology stocks, and it is likely that this sector continues to drive the upside for the rest of the year.
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The good news for growth investors is there are still solid opportunities in technology, the bad news is that companies that have driven the huge year-to-date gains, like Nvidia and Meta Platforms, are very overbought and are likely due to consolidate some.

A good idea is to find tech names that can lead the next leg higher. We screened the Goldman Sachs Conviction List of top stock ideas looking for technology ideas favored by one of the top investment banks in the world. Four top stocks make the cut, and all offer aggressive growth investors solid upside potential. While they are rated Buy 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

Some investors may not be as familiar with this name, 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 in 2021 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 last 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 FCF margins alongside hyper-growth, Datadog is poised to grow into a preeminent infrastructure software business.

Goldman Sachs has a $114 price target on Datadog stock. That is well above the $97.33 consensus target and Wednesday’s $91.28 closing share price. Rising to the Goldman Sachs target would be close to a 30% gain.

Microsoft

This is a more conservative way for investors to participate in the massive cloud and AI growth. Microsoft Inc. (NASDAQ: MSFT) develops, licenses and supports software, services, devices and solutions worldwide. The company operates in the following 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, while Nuance provides health care and enterprise AI solutions, and Azure is 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, as well as 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.

This segment 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, as well as directly through digital marketplaces, online stores and retail stores.

The software giant posted first-quarter fiscal 2023 numbers that beat Wall Street expectations on both 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 investors receive a 0.88% dividend. Goldman Sachs team has set its price target at $335. The consensus target is $331.45, and shares closed at $314.00 on Wednesday.

Salesforce

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.

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

The company provides its Service offerings for customers in financial services, health care and life sciences, manufacturing and other industries.
Salesforce 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 price objective is $325. Salesforce stock has a consensus target of just $223.85. Wednesday’s close was at $209.38, so hitting the Goldman Sachs target would be close to a 60% gain.
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ServiceNow

This was one of the hottest names over the past few years, and it could be poised for a big 2023. ServiceNow Inc. (NYSE: NOW) provides enterprise cloud computing solutions that define, structure, consolidate, manage and automate services for enterprises worldwide.

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.

The $650 Goldman Sachs target price compares with the $539.39 consensus target, and ServiceNow stock ended Wednesday trading at $492.92. Hitting the Goldman Sachs target would be almost a 40% gain.

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These four outstanding tech companies are the top picks in the sector at Goldman Sachs. They all have a dominant position in their respective corporate silos, and all offer some huge upside to the target prices. Given that more of the same trouble we have seen earlier this year could be coming our way in the second 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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