Got $5,000? 2 Tech Stocks to Buy and Hold for the Long Term

The economic backdrop has shifted in the past couple of decades. Even the most laid-back observers have figured out that technology is becoming an increasingly important part of our daily lives. This has investment implications.

When positioning your portfolio for the coming decades, it looks like a smart move to put some money to work in technology and internet-related companies.

With this framework in mind, if you have $5,000 ready to invest, consider these two tech stocks to buy and hold for the long term.

Billions of users

Alphabet (GOOGL 0.38%) (GOOG 0.34%) and Meta Platforms (META -0.42%) should have investors’ attention right now. Their large user bases are hard to ignore.

Alphabet CEO Sundar Pichai said in July 2023 that the business has “15 products that each serve half a billion people, and six that serve over 2 billion each.” That’s hard to wrap your head around, and it points to just how important Alphabet has become in people’s lives.

Meta is no slouch in this regard. Its family of social networking apps, which include Facebook, Instagram, WhatsApp, Messenger, and Threads, combined had 3.35 billion daily active users as of Dec. 31. These are some of the most popular internet properties in the world.

Having such massive user bases points to the dominance of these two companies. But it also presents a key advantage with artificial intelligence (AI) ambitions. Alphabet and Meta can introduce new AI-related features and updates, whether they’re geared toward individual users or advertisers, for almost instant adoption.

This can then inform strategic pivots at a rapid pace. Most companies aren’t as fortunate.

Network effects

Investors should want to own businesses with durable competitive advantages, otherwise known as an economic moat. This helps lower the chances a company gets disrupted anytime soon. Both Alphabet and Meta possess network effects — perhaps the most powerful competitive advantage.

The amount of information on the internet continues to grow. This leads to more people conducting more searches, resulting in Google Search’s algorithm improving, which leads to a better service. Plus, all this activity drives more ads.

Alphabet-owned YouTube also benefits from a network effect. As more content is put on the site, viewers are enriched by having more things to watch. And as more viewers are drawn to the platform, it incentivizes the production of more content.

Meta’s social media apps are in the same boat. With more users, a greater number of connections can be made. Then there’s more content being created, which can lead to more engagement and more users. This is also valuable to advertisers.

Buy-the-dip candidates

The latest market sell-off has presented a fantastic buying opportunity. Shares of Alphabet and Meta have dropped 20% and 19% (as of March 17), respectively, from their all-time highs established in February. Alphabet trades at a price-to-earnings ratio of 20.4, while Meta’s multiple is at 25.1. This makes them the two cheapest stocks of the “Magnificent Seven.” 

This valuation seems too hard to pass up. Both businesses are projected to generate double-digit earnings-per-share growth over the next three years. This seems reasonable, given that these forecasts are lower than the gains achieved in the past 10 years.

In addition to the positive factors mentioned, these companies are in incredible financial shape. They’re extremely profitable, generate ridiculous amounts of free cash flow, and have strong balance sheets. This will allow them to weather whatever industry or macro headwinds present themselves, while also investing heavily in AI capabilities to further bolster their standing with users and ad customers.

Investors shouldn’t think twice: Buying Alphabet and Meta stock with $5,000 and holding for the long term is a smart move.