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3 Great Tech Stocks for Your IRA

Motley Fool - Wed Sep 13, 5:15AM CDT

Buying tech stocks to hold over time, such as in an individual retirement account (IRA), can lead to strong gains in the long run thanks to the tech sector's ability to generate new offerings that drive economic growth. An example is this year's emergence of artificial intelligence into the mainstream.

So while tech stocks had a rough 2022, fortunes reversed in 2023, despite ongoing macroeconomic headwinds like persistent inflation. For instance, the 100 largest stocks by market cap on the tech-heavy Nasdaq gained 39% in the first half of the year, the best performance in the exchange's history.

But you don't have to guess which tech companies will produce breakthrough technology. Here are three dependable tech stocks that are excellent long-term investments to consider for your IRA: Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG), IBM(NYSE: IBM), and Verizon(NYSE: VZ).

Tech stock 1: Alphabet

A key reason Alphabet's a fit for your IRA is because the company boasts several revenue streams with multi-year growth prospects. It's the global leader in the digital advertising space, where it holds a 39% market share thanks to businesses such as Google and YouTube.

Alphabet's Google search engine generated nearly 60% of the company's $74.6 billion in second-quarter revenue from advertising. YouTube contributed another $7.7 billion in Q2 ad revenue. And Alphabet's ad sales are poised to rise thanks to the digital advertising industry's ongoing growth. U.S. ad spending is forecasted to expand from 2022's $245 billion to $395 billion by 2027.

The company also possesses a prosperous cloud computing business, Google Cloud. This division consistently produced double-digit sales growth annually, including 28% year-over-year revenue growth to $8 billion in Q2.

Another revenue growth opportunity is Alphabet's investments in artificial intelligence. The company released a number of new AI capabilities this year for advertisers, and integrated AI features into Google Cloud, such as enhanced cybersecurity. The worldwide AI market is expected to grow from $142.3 billion in 2022 to $1.8 trillion by 2030, providing Alphabet with yet another long-term revenue boost.

Tech stock 2: IBM

Like Alphabet, tech giant IBM operates in the lucrative cloud computing market. IBM is among the Top 10 largest cloud computing companies in the world. Big Blue focuses on the hybrid cloud market, which is forecasted to see sales more than triple from 2021's $85 billion to over $262 billion by 2027, providing a multi-year tailwind to IBM's revenue.

And like Alphabet, IBM offers AI solutions, backed by decades of experience in the field. The company debuted its new watsonx AI platform in July, and organizations such as NASA are already using the technology.

IBM's Q2 revenue of $15.5 billion may be far less than Alphabet's $74.6 billion, but IBM offers one benefit that Alphabet doesn't: a dividend. IBM's dividend currently yields over 4%, and the company has paid dividends since 1916. In April, IBM increased its dividend for the 28th consecutive year.

This impressive track record is poised to continue. IBM's free cash flow, which indicates the company's ability to pay its dividend, is expected to reach $10.5 billion this year, an increase of over $1 billion from 2022. Since the company operates in the expanding industries of cloud computing and AI, IBM is well positioned to continue generating FCF to fund its dividend over the long term.

Tech stock 3: Verizon

Verizon is a worthwhile stock for your IRA because telecommunications is a necessity in today's connected world. This enables Verizon to maintain steady free cash flow to fund and increase its impressive dividend, yielding over 7% at the time of this writing.

Verizon raised its dividend for the 17th consecutive year on September 7, and consistently paid dividends since 1984. The company produced free cash flow of $8 billion in the first half of 2023, up from $7.2 billion the prior year.

But unlike Alphabet and IBM, Verizon's stock price languished this year as customer growth slowed among its postpaid phone subscribers, the telecom industry's most valuable customer segment. So the company shifted strategy to focus on growing what its postpaid customers spend with Verizon.

The strategy is working. Verizon grew average revenue per account (ARPA), which measures the average income Verizon generates from each customer, to $130.95 in the first half of 2023, the highest level in years. Consequently, Verizon's Q2 wireless service revenue increased 3.8% over the prior year to contribute $19.1 billion to Q2's total revenue of $32.6 billion.

In addition, the rollout of Verizon's 5G network provides multiple revenue streams. The primary income source is wireless phone service, while a new source is broadband internet, since Verizon's 5G network can deliver speed and reliability that prior generations of wireless networks could not.

Combine Verizon and IBM's high-yield dividends with Alphabet's potential for rising revenue, and you have a trio of dependable tech stocks that provide passive income and growth opportunities to fuel the success of your IRA.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Robert Izquierdo has positions in Alphabet, International Business Machines, and Verizon Communications. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends International Business Machines, Nasdaq, and Verizon Communications. The Motley Fool has a disclosure policy.

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