Technology stocks frequently offer investors opportunities for growth unparalleled by other sectors. Innovation, the engine of new products and services, largely defines the industry.
Over the past year, the Morningstar US Technology Index rose 30.16%, outpacing the Morningstar US Market Index’s 23.92% gain. However, Morningstar’s analysis suggests that tech stocks are about 5% overvalued as a sector. Despite this, certain companies still provide solid investment opportunities.
Top Tech Stocks to Consider
The following technology companies, which have Morningstar Economic Moat Ratings of wide or narrow, are considered undervalued based on our fair value estimates as of February 19, 2025:
- Sensata Technologies (ST)
- NICE (NICE)
- Sabre Corporation (SABR)
- Endava (DAVA)
- Taiwan Semiconductor Manufacturing Company (2330)
- ON Semiconductor (ON)
- Adobe (ADBE)
- Fidelity National Information Services (FIS)
- Manhattan Associates (MANH)
- NXP Semiconductors (NXPI)
Here’s a closer look at some of the best tech stocks, including insights from Morningstar analysts.
Sensata Technologies
- Morningstar Price/Fair Value: 0.59
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Narrow
- Industry: Scientific & Technical Instruments
Sensata Technologies, a technical instruments company, is the most affordable stock on the list. It supplies sensors and electrical protection for transportation and industrial uses. Sensata’s stock trades 41% below our fair value estimate of $51 per share.
William Kerwin, Morningstar senior analyst, noted, “We see Sensata Technologies as a distinct supplier of sensors and electrical protection primarily for transportation markets. The company is positioned to benefit from electrification, efficiency, and connectivity trends. Electric vehicles and stricter emissions regulations give Sensata the opportunity to sell into new sockets, which has helped the company outpace vehicle production growth by about 4% historically. We think this outperformance is achievable over the next decade, given the growing EV market and Sensata’s expanding content in higher-voltage vehicles.”
Kerwin added, “Sensata’s ability to increase dollar content in vehicles indicates intangible assets in sensor design, as it closely collaborates with OEMs and Tier 1 suppliers. The mission-critical nature of the systems into which Sensata sells fosters switching costs, leading to an average relationship length of approximately 30 years with its top 10 customers. We believe Sensata benefits from a narrow economic moat due to these switching costs and intangible assets, and we expect it to earn excess returns on invested capital over the next 10 years.”
Over the next decade, Sensata is expected to prioritize organic growth in electric vehicles and increasingly electrified industrial applications, according to Kerwin. “The firm has historically been an active acquirer but is focusing on organic investment, reduced leverage, and increased shareholder returns in the medium term, of which we approve. We like the firm’s focus on electrification, which we feel is the most attractive growth opportunity available,” Kerwin says. “Still, we believe new management has to prove an ability to extract consistent organic growth to investors. The firm’s ability to grow content in electric vehicles and outperform underlying global automotive production are the primary drivers of our investment thesis.”
NICE
- Morningstar Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Economic Moat Rating: Narrow
- Industry: Software – Application
NICE, an enterprise software company serving the customer engagement and financial crime and compliance sectors is trading 38% below its fair value estimate. Its shares are estimated to be worth $290 each, and it holds a narrow moat rating.
Rob Hales, Morningstar senior analyst, noted, “Nice delivers cloud and on-premises software solutions primarily for the customer engagement market, as well as the financial crime and compliance (FC&C) market. The revenue is mainly generated in the US but international expansion has increasingly become a priority.”
“The customer engagement sector accounts for about 80% of company revenue, including its public safety business. CXone, Nice’s flagship customer engagement product, is a cloud-native contact center as a service (CCaaS) platform. CXone is a leading product that is increasingly critical for omnichannel interactions in a move to digital-first customer engagement. With only 15% to 20% of contact center agents in the cloud, the growth opportunity is significant. Consequently, we expect robust midterm growth as customers transition to the cloud.”
According to Hales, Nice earns about 20% of its revenue from its FC&C business, which offers cloud-based risk management, fraud prevention, anti-money laundering, and compliance solutions. “The increase in compliance costs, the digitalization of financial services, the disruption of digital assets, and the explosion of data will accelerate the cloudification of the financial-services industry,” Hales states. “Nice now has cloud-based solutions to serve organizations of all sizes, including X-Sight for the enterprise market and Xceed for the small and medium-sized market.”
For its 2022-26 strategic cycle, Nice aims for double-digit total revenue growth, over 80% of total revenue from cloud products, and a non-GAAP operating margin above 30%,” Hales reports.
Sabre Corporation
- Morningstar Price/Fair Value: 0.70
- Morningstar Uncertainty Rating: Very High
- Morningstar Economic Moat Rating: Narrow
- Industry: Software – Infrastructure
Sabre has the second-largest air booking volume share in the global distribution system sector. Currently, its shares trade 30% below our fair value estimate reflecting its narrow moat rating. We estimate the shares are worth $4.87 each.
Dan Wasiolek, Morningstar analyst, stated, “Despite concerns about consumer saving rates and corporate travel demand uncertainty, we anticipate Sabre will maintain its position in global distribution systems over the next 10 years. This view is driven by a gradual recovery in corporate travel and Sabre’s leading network of airline content and travel agency customers as well as its solid position in technology solutions for these carriers and agents. Sabre’s more than 30% GDS air transaction share is the second largest of the three companies, behind narrow-moat Amadeus and ahead of privately held Travelport, that control a large portion of market volume. Sabre is also a leader in providing technology solutions to travel suppliers.”
Wasiolek noted, “Sabre’s GDS enjoys a network advantage, supported by technology that integrates GDS content with agents’ back-office operations and suppliers’ IT solutions. Although we see GDS aggregation, processing, and back-office advantages as substantial, technology architectures like those of Etraveli enable end users to access not only GDS content but supply from competing platforms, which could take some volume from companies like Sabre. Also, GDS faces some risk of larger carriers making direct connections with larger agencies, although we expect these relationships to be the exception rather than the rule and for Sabre to still be the aggregating platform in either case.”
Endava
- Morningstar Price/Fair Value: 0.73
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Narrow
- Industry: Software – Infrastructure
Endava is a next-generation IT services company offering digital transformation services. It’s trading at a 27% discount relative to our $42 fair value estimate. The software infrastructure firm holds a narrow economic moat rating.
Rob Hales, Morningstar senior analyst, stated, “Endava, based in the UK, is an IT services company focused on providing digital transformation and engineering services. It charges clients on a time and materials basis for services like consulting, customized software development and integration, and quality assurance and testing. Endava is greatly exposed to the financial services sector, with almost half its revenue generated from the sector.”
“Like many of its peers, Endava’s core strategy is to secure big clients and grow revenue in those relationships by providing more services,” Hales stated. “Endava’s 10 largest clients account for around a third of group revenue. Endava concentrates on the financial services and technology, media, and telecom industries. The company aims to diversify its industry exposure by securing new clients from new verticals. In particular, Endava is targeting clients in retail and healthcare given its current expertise is most transferrable.”
“To best serve its clients’ unique digital transformation goals, the flexibility from the iterative nature of agile project management is effective,” Hales explains. “Furthermore, the nonstandardized nature of these projects requires interaction between Endava and its clients, which means having delivery teams with similar time zones to its clients (nearshoring) is best to deliver the project successfully in a timely manner.”
Taiwan Semiconductor Manufacturing Company
- Morningstar Price/Fair Value: 0.74
- Morningstar Uncertainty Rating: Medium
- Morningstar Economic Moat Rating: Wide
- Industry: Semiconductors
Taiwan Semiconductor Manufacturing is the leading dedicated chip foundry, commanding over 60% market share. It has a wide economic moat rating. Its shares seem 26% undervalued relative to our $273 fair value estimate.
Phelix Lee, Morningstar analyst, stated, “Taiwan Semiconductor Manufacturing Co. is the world’s largest dedicated contract chip manufacturer, with over 60% market share. It makes integrated circuits for customers based on their proprietary IC designs,” Lee says. “TSMC has long benefited from semiconductor firms around the globe transitioning from integrated device manufacturers to fabless designers.”
ON Semiconductor
- Morningstar Price/Fair Value: 0.77
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Narrow
- Industry: Semiconductors
Onsemi supplies power semiconductors and sensors focused on the automotive and industrial markets. It holds a narrow economic moat rating, and its stock looks 23% undervalued compared to our $72 fair value estimate.
William Kerwin, Morningstar senior analyst, noted, “We believe Onsemi is a power chipmaker aligning itself to the differentiated parts of its portfolio in order to accelerate growth and margin expansion. We expect the firm to outpace the growth of its underlying markets over the next five years as it tailors its portfolio of chips and sensors to pursue secular trends toward electrification and connectivity.”
Adobe
- Morningstar Price/Fair Value: 0.77
- Morningstar Uncertainty Rating: High
- Morningstar Economic Moat Rating: Wide
- Industry: Software – Application
Adobe is a provider of content creation, document management, and digital marketing and advertising. The company holds a wide economic moat rating, making its stock appear 23% undervalued relative to our $590 fair value estimate.
Dan Romanoff, Morningstar senior analyst, stated, “Adobe has come to dominate in content creation software with its iconic Photoshop and Illustrator solutions, both now part of the broader Creative Cloud. The firm has added new products and features to the suite through organic development and bolt-on acquisitions,” Romanoff explains. “The December 2021 launch of Adobe Express helps further broaden the company’s funnel.”
Fidelity National Information Services
- Morningstar Price/Fair Value: 0.79
- Morningstar Uncertainty Rating: Medium
- Morningstar Economic Moat Rating: Narrow
- Industry: Information Technology Services
Fidelity National Information Services delivers core processing and ancillary services to banks, with its business expanding over time. The firm earns a narrow economic moat rating. Its stock appears 21% undervalued relative to our $88 fair value estimate.
Brett Horn, Morningstar senior analyst, stated, “Fidelity National Information Services’ acquisition of Worldpay in 2019 was one of three similar transformational deals that took place in short order. But FIS has more recently decided to undo the Worldpay deal as it struggled with operational issues within the Worldpay business.”
Manhattan Associates
- Morningstar Price/Fair Value: 0.80
- Morningstar Uncertainty Rating: Medium
- Morningstar Economic Moat Rating: Wide
- Industry: Software – Application
Manhattan Associates provides software helping users manage supply chains, inventory, and omnichannel operations. Currently trading 20% below our fair value estimate, Manhattan Associates has a wide economic moat rating. Our analysis suggests worth of about $230 per share.
Dan Romanoff, Morningstar senior analyst, noted, “Manhattan Associates is the clear leader in the warehouse management systems software niche, in our view. Supply chains are complex and any disruption to warehouse operations could have a significant ripple effect among all nodes in the chain, which is captured in sticky customer relationships,” Romanoff explains. “Manhattan Associates is building on its lead with cloud versions of its software solutions, which has also brought about margin expansion and accelerating growth, which we think will lead to improving returns.”
NXP Semiconductors
- Morningstar Price/Fair Value: 0.82
- Morningstar Uncertainty Rating: Medium
- Morningstar Economic Moat Rating: Wide
- Industry: Semiconductors
NXP Semiconductors rounds out the list of best tech stocks to buy. The company is a leading supplier of high-performance mixed-signal products, with the stock trading 18% below our fair value estimate of $300 per share.
Brian Colello, Morningstar strategist, stated, “NXP Semiconductors is one of the largest suppliers of semiconductors for the automotive market. Although the company sells into cyclical industries, the strength of these competitive advantages gives us confidence that it will generate excess returns over the cost of capital over the next decade and beyond.”
