8 Cheap Tech Stocks to Watch in 2023 | The Motley Fool

The technology sector has played a leading role in powering the market’s gains over the past couple of decades. New hardware, software, and services have driven changes in business and everyday life. Tech’s ability to shape and influence almost every industry under the sun means the sector remains one of the best starting places for investors seeking big gains.

After a brutal sell-off that began at the end of 2021, even some high-flying growth stocks might be considered a great long-term deal right now. And, for many older and slower-growing tech stocks , valuations are attractive. Here are eight “cheap” tech stocks that could deliver strong returns over the long term:

1. Lumen Technologies

CenturyLink changed its name in late 2020 to Lumen Technologies as part of a broader effort to refocus its business and has been making progress under its new banner. Share prices increased 28% in 2021 but have fallen sharply so far in 2022, along with other tech companies. However, the stock remains cheaply valued (just three times trailing 12-month free cash flow as of this writing) and offers attractive characteristics for investors seeking big dividend payments.  

Lumen is pivoting its core business from copper-based broadband services to high-performance fiber lines, which have a stronger demand outlook in the age of next-gen internet technologies. The company is also leveraging its position in enterprise internet services to explore growth opportunities in edge computing, cybersecurity, and collaboration software. This deep value stock could deliver big gains if the company’s turnaround effort succeeds.

2. Applied Materials

Applied Materials provides the equipment needed to manufacture semiconductors. Many chip companies are cyclical, with revenue and profits ebbing and flowing with consumer and business demand. However, Applied Materials is a much more stable growth business model. New chip fabrication plants and expansion take years of planning, and their equipment requires ongoing service — a source of revenue for Applied as well.  

In addition to steady growth, along with the microchip manufacturing industry overall (accelerated especially by network-connected industrial equipment and electric vehicles), a push is being made around the globe to diversify and localize the semiconductor supply chain. Governments are allocating billions of dollars to promote new manufacturing capabilities at home. This bodes well for Applied Materials. The company consistently generates high operating profit margins and returns all of its free cash flow to shareholders via a dividend and share repurchases. The stock trades for just 17 times trailing 12-month free cash flow.  

3. Alphabet

One of the FAANG stocks (large tech companies with big competitive advantages), Alphabet has gone from high-flying internet search technologist to value stock status. Alphabet’s Google search business continues to chug along at a double-digit percentage growth rate and generates operating profit margins well into the 30% range. It uses this profitability to fund even higher-growth businesses such as YouTube and Google Cloud, as well as emerging technologies such as its self-driving car start-up Waymo.  

Alphabet also has the largest cash and short-term investment (net of debt) balance of any public company at some $120 billion as of early 2022. Paired with its fast and steady expansion, there’s a lot to like about Alphabet for the long term — especially with shares trading for just 22 times trailing 12-month free cash flow and 17 times one-year forward expected earnings.  

4. T-Mobile

After mobile phone services went mainstream in the 2000s and 2010s, mobile service operator growth has matured — and valuations have gotten cheap. That includes the emerging leader in the new era of 5G, T-Mobile. Now boasting the most U.S. subscribers and still adding more, the company trades for 1.9 times trailing 12-month sales at the start of 2022 (compared to 1.4 for the sluggish but dividend-paying Verizon (NYSE:VZ)).  

Mobile connectivity is increasingly central to business and everyday life, and it’s likely that digital connectivity will become even more important through the next decade and beyond. T-Mobile is in the early stages of benefiting from the 5G revolution. Although by some metrics it still isn’t profitable (negative free cash flow but positive net income) and doesn’t pay a dividend, T-Mobile is the fastest-growing of the U.S. telecom giants.