Tech stocks got you down? While weeks of institutional tech stock outflows indicated souring sentiment, this week’s tech sector “crash” — though due for a correction, considering its current concentration — only trades a few points below recent highs. Whether the downward trend will continue remains to be seen, but I think there’s a higher likelihood of realignment among tech stocks to diversify away from the major names driving this year’s rally.
To that end, picking tech stocks as moods and winds shift means taking on a bit more risk, but also scratching beneath the surface to find which companies have unique value propositions, limited new entrants, dominant market positions or just a better product than competitors. These three tech stocks have all those traits in spades, making them a unique blend of opportunities to move away from tech stocks currently dropping down.
Onto Innovation (ONTO)
Onto Innovation (NYSE:ONTO) is firmly within the hardware camp of tech stocks, often less desirable than the software-as-a-service (SaaS) superstars. Still, it plays a major supporting role in the semiconductor industry. Despite being a peripheral player, Onto benefits from the overall growth trends in the sector, as evidenced by its impressive 43% year-to-date increase.
Last August, Onto secured a substantial $100 million contract for its Dragonfly inspection system. This advanced technology is essential for detecting flaws in semiconductors produced by third parties, catering to major companies like Nvidia (NASDAQ:NVDA). Onto’s critical position in the semiconductor supply chain is due to the indispensable nature of its inspection services, making it a vital partner for a wide array of semiconductor manufacturers. As semiconductor demand grows, Onto’s customer base will expand, given the increasing reliance on semiconductors across all electronic systems — especially as geopolitical concerns surge.
The relentless demand for AI and GPUs is driving the market forward, with projections indicating the technology market could reach $25.5 billion by 2030. Onto Innovation’s current position sets it up to capitalize on this growth as the semiconductor industry continues to evolve, irrespective of which companies lead the charge.
Teladoc Health (TDOC)
Teladoc Health (NYSE:TDOC) experienced a dramatic rise and fall during the pandemic that affected most tech stocks, like Peloton (NASDAQ:PTON) and Zoom Video Communications (NASDAQ:ZM). Trading over 90% below its peak, Teladoc’s decline doesn’t reflect its business model’s sustainability or potential. Investing in Teladoc now offers an opportunity to capitalize on the growing telehealth sector within healthcare technology.
Telehealth’s viability was proven during the pandemic, and remote healthcare services are now a permanent fixture. Over 20% of adult patients opt for telehealth instead of in-person visits. Notably, this trend is even more pronounced among older adults: 43% of patients age 65 and above use remote healthcare services, compared to 29% of those age 18 to 29. As the national population continues to age, the prevalence of telemedicine is expected to increase accordingly.
Although Teladoc competes with tech stocks and generalist platforms like Zoom and Cisco Systems (NASDAQ:CSCO) in market share, these platforms are not telemedicine specialists. In the specialized telemedicine sector, Teladoc is on par with direct competitors like American Well (NYSE:AMWL) and Doxy.me. As telehealth systems become more specialized, Teladoc’s focus on healthcare-specific solutions positions it favorably. Furthermore, any major data breach leading to HIPAA violations — and Zoom alone has seen several, with the most recent major security concern just a few months ago — could severely impact generalist platforms’ ventures into healthcare, leaving dedicated telehealth tech stocks like Teladoc in a stronger position.
Palantir (PLTR)
Palantir Technologies (NYSE:PLTR) has finally broken free from its sub-$25 trading range and renewing its meme stock status in some cases. However, those following the company know that Palantir has always been a strong contender among tech stocks, despite its price volatility, which makes short-term trading challenging.
One of Palantir’s key strengths today is its rapid diversification beyond government contracts. While these contracts provide reliable revenue and long-term stability, relying heavily on a few clients is risky. Recognizing this, Palantir has successfully expanded its reach into the corporate sector. Its impressive client list now includes Tampa General Hospital, United Airlines (NASDAQ:UAL), AARP, and Wendy’s (NASDAQ:WEN), among others.
This expansion into the corporate world is creating a snowball effect for Palantir. As it delivers substantial value to diverse private firms, its reputation and client base continue to grow. The company’s operational model fosters a certain client stickiness that leads to high switching costs, making it difficult for customers to transition to competitors once they’ve integrated Palantir’s solutions.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held LONG positions in NVDA and PLTR.
