As we approach 2025, the technology sector continues to offer a fertile ground for investors seeking steady growth amidst a backdrop of rapid innovation and transformation. The relentless evolution in areas such as artificial intelligence, cloud computing, and data storage is not only reshaping industries, but also creating substantial opportunities for companies poised to lead these changes.
Analysts are optimistic about the growth outlook in the tech sector for 2025, following a period marked by challenging macroeconomic conditions and a tough environment for tech spending. For instance, William Blair analysts believe that app modernization and digital transformation will gain momentum after a few dormant years, a PC upgrade cycle will be spurred by the end of the life of Microsoft’s (MSFT) Windows 10, and maturing generative AI projects will fuel incremental spending.
Given this backdrop, the investment firm compiled its top stock picks for 2025, featuring several prominent tech companies such as Cloudflare (NET), Broadcom (AVGO), and Pure Storage (PSTG). With that, let’s have a closer look at these stocks.
Tech Stock #1: Cloudflare
Cloudflare (NET) provides a wide range of services to enhance security, performance, and reliability for businesses around the globe. It employs a subscription-based pricing model to generate a recurring revenue stream, which includes add-on services for up-selling and cross-selling opportunities, as well as enterprise solutions to increase earnings. Its market cap currently stands at $38.7 billion.
Shares of the cloud-based security solutions provider have climbed 35% on a year-to-date basis.
William Blair’s View on NET Stock
Blair noted that Cloudflare is strategically positioned at the crossroads of key trends in the technology space of AI cybersecurity and edge computing. Information storage and computing are being moved closer to the devices that generate the data and the users who access it.
“We believe the company has a strong demand for its offerings, including R2, D1, durable objects, AI Gateway, Cloudflare Workers, SASE, and broader cybersecurity solutions,” William Blair's analysts wrote. “In our view, Cloudflare’s use cases are favorable for scalable, small language model applications and inference modeling where developers are looking for relatively low-cost, responsive, and scalable infrastructure. We believe Cloudflare is well positioned to capture early market share and potentially grow as these applications begin to evolve.”
The firm also highlighted several key risks, including a sales organization that is still maturing, the rapid launch of many products that appear to be “works in progress,” and the possibility that edge computing markets may take longer to develop than initially anticipated.
Recent News for NET Stock
On Nov. 20, Cloudflare announced its continued growth in the Mexican market after a year of investing and expanding its operations there. Since expanding its Latin American operations to Mexico City a year ago, Cloudflare has enhanced its network infrastructure in Mexico with a new data center in Guadalajara, strengthened integrations with key customers and partners in the region, and built a robust cross-functional employee base.
“Cloudflare’s first year of operating on the ground in Mexico City has laid a strong foundation with our customers and partners across Latin America’s technology ecosystem,” said Carlos Torales, Head of Latin America at Cloudflare. “We’ve been deepening the integrations of Cloudflare’s connectivity cloud platform for organizations across sectors, powered by our infrastructure network which continues to expand in the region. Looking ahead, we remain focused on Cloudflare’s innovation coupled with partnership growth in order to provide more Mexican businesses with our all-in-one solution to secure and scale their operations globally.”
How Did NET Perform in Q3?
On Nov. 7, Cloudflare released its Q3 financial results that topped expectations. Its revenue grew 28.2% year-over-year to $430.1 million, exceeding both the guidance range of $423 million to $424 million and Wall Street’s expectations of $424.1 million. The company maintained strong momentum in the Enterprise segment, adding a record 219 new large customers with $100,000-plus in annual recurring revenue (ARR), increasing the total number of customers with $100,000-plus in ARR to 3,265, up 28% year-over-year. Notably, it reached a new milestone with 35% of the Fortune 500 companies now counted as paying Cloudflare customers. Large customers contributed 67% of total revenue during the quarter, up from 65% in the prior year and consistent with the previous quarter.
Meanwhile, the dollar-based net retention rate came in at 110%, reflecting a decrease of 2 percentage points compared to the previous quarter. While the decline aligns with a longer-term trend, 110% is still a solid figure, and as long as this level is sustained, there is reason to remain optimistic.
On the profitability front, NET’s gross margin was 78.8%, exceeding its long-term target range of 75% to 77% and slightly up from 78.7% in the same quarter last year. Also, NET reported a non-GAAP operating income of $63.5 million, exceeding guidance of $50 million to $51 million. Its adjusted EPS stood at $0.20, beating expectations by $0.02. In addition, the company has advanced toward GAAP profitability, with its GAAP operating loss and GAAP net loss narrowing year-over-year.
Despite a challenging operating environment, Cloudflare continues to uphold its competitive position, backed by its product innovation roadmap. During the quarter, the company introduced new features for its serverless AI platform, Workers AI, designed to help developers create faster and more efficient AI applications that would benefit from quicker inference.
NET closed the quarter with $1.8 billion in cash compared to $1.3 billion in debt, reflecting a strong net cash position on its balance sheet.
However, NET stock dropped more than 4% in the following trading session as the company’s fourth-quarter revenue guidance fell short of investor expectations. Cloudflare expects revenue between $451 million and $452 million for the fourth quarter, reflecting a 25% year-over-year increase at the midpoint, slightly below the $455 million estimate. Adjusted EPS is projected at $0.18, surpassing the estimate of $0.17. In addition, management slightly boosted its FY24 revenue guidance to a range of $1.661 billion to $1.662 billion, up from the prior range of $1.657 billion to $1.659 billion.
NET Valuation and Analyst Estimates
According to Wall Street estimates, NET is expected to post a solid 51.63% year-over-year adjusted EPS growth to $0.74 in FY24. Also, Wall Street anticipates the company’s revenue to grow 28.15% year-over-year to $1.66 billion.
From a valuation perspective, the stock is currently priced for perfection, offering minimal room for error or underperformance. Priced at 151.67 times forward adjusted earnings, the stock trades at a substantial premium compared to the sector median of 25.36x. A similar trend is evident in its forward EV/Sales and EV/EBITDA multiples.
What Do Analysts Expect for NET Stock?
On Dec. 17, Stifel upgraded the stock to “Buy” from “Hold” and raised its price target to $136 from $95. The firm believes Cloudflare is well-positioned to enhance execution and exceed expectations within a massive and expanding total addressable market.
Analysts have a consensus rating of “Moderate Buy” on Cloudflare stock. Among the 29 analysts covering the stock, nine rate it as a “Strong Buy,” one as a “Moderate Buy,” 15 assign a “Hold” rating, one considers it a “Moderate Sell,” and the remaining three give a “Strong Sell” rating. Notably, the stock trades at a premium to its mean price target of $97.08 but has 20.7% upside potential to the Street-high price target of $136.00.
Tech Stock #2: Broadcom
With a market cap of $1.03 trillion, Broadcom Inc. (AVGO) specializes in designing, developing, and supplying a range of semiconductor devices globally, focusing on complex digital and mixed-signal complementary metal oxide semiconductor-based devices and analog III-V-based products.
Shares of the semiconductor firm have rallied 115% year-to-date.
William Blair’s View on AVGO Stock
Broadcom ranks as one of William Blair’s top picks for the coming year. The firm noted that AVGO’s industry-changing acquisition of VMware is exceeding expectations, as higher prices, enforced bundling, and a transition to subscription or software-as-a-service licensing have significantly boosted VMware’s revenue growth.
“Broadcom’s industry-changing acquisition of VMware is performing better than expected for the company, as increased prices, forced bundling, and shift to subscription/SaaS licensing have greatly benefited VMware top-line’s growth,” analysts at the firm wrote. “While many customers have been turned off by the acquisition, most larger organizations are feeling pressure to renew for another two to three years as they figure out how to migrate to alternatives - we suspect it will not be until 2026/2027 that we see meaningful churn in the VMware customer base.”
William Blair also highlighted Broadcom’s “strong alignment” within its custom chip business. The investment firm anticipates steady growth from existing customers with whom the company has deeply entrenched partnerships, such as Google and Meta, heading into 2025. Additionally, it expects incremental revenue from new customers like ByteDance, OpenAI, and Apple (AAPL).
William Blair analysts point to several other strengths, including Broadcom’s networking business, the diversification of its semiconductor business into non-AI markets, and its “best-in-class profitability and shareholder returns.”
Meanwhile, key risks include the cyclical nature of the semiconductor business, integration challenges with VMware, and Broadcom’s heavy reliance on Chief Executive Hock Tan.
Broadcom Soars After FQ4 Results
On Dec. 12, Broadcom reported its FQ4 earnings results, which were well-received by Wall Street, resulting in a surge of over 24% in AVGO stock in the following trading session.
The company’s consolidated revenue advanced 51.2% year-over-year to $14.1 billion, in line with Wall Street’s consensus. The first key point is that its top line grew 8% quarter-over-quarter, reflecting rising demand and demonstrating that the VMware acquisition is not obscuring organic growth. Next, AVGO saw growth across its core businesses. The Infrastructure Software segment’s revenues surged 196% year-over-year to $5.8 billion, bolstered by the contribution from VMware, while the Semiconductor segment’s revenues increased by 12% year-over-year to $8.2 billion. It is also important to highlight the momentum in AI revenue, which skyrocketed 220% year-over-year to $3.7 billion, making up 45% of the company’s semiconductor revenue and continuing its exponential growth trajectory.
On the profitability front, AVGO’s gross margin stood at 77%, stable quarter-over-quarter and up 260 basis points from the same quarter last year, effectively converting a significant portion of the revenue increase into income and cash flow further down the income statement. As a result, its adjusted EPS was a record $1.42, topping estimates by $0.03. Additionally, the chipmaker reported adjusted EBITDA of $9.1 billion, achieving an adjusted EBITDA margin of 65%.
AVGO generated $5.5 billion in free cash flow in FQ4, with an impressive free cash flow margin of 39%, which lays a solid foundation for attractive capital returns.
Looking ahead, the company forecasts revenue of approximately $14.6 billion and an adjusted EBITDA margin of 66% for fiscal Q1, which translates to $9.6 billion in adjusted EBITDA, up 6% quarter-over-quarter. Moreover, during a post-earnings conference call, management stated that sales of AI products are expected to increase by 65% in FQ1, significantly outpacing its overall semiconductor growth of about 10%. The chipmaker also estimated that the addressable market for AI components it designs for data center operators could grow to as much as $90 billion by fiscal 2027.
AVGO Valuation, Dividend, and Analysts’ Estimates
Analysts tracking the company expect a 30.15% year-over-year increase in its adjusted EPS to $6.34 for fiscal 2025, while AVGO’s top line is estimated to grow 18.57% year-over-year to $61.15 billion.
Broadcom pays a conservative yet steadily growing dividend. AVGO offers a forward yield of 1% and has consistently grown its dividend for 15 consecutive years. On Dec. 12, Broadcom declared an 11% increase in its dividend to $0.59 per share amid higher cash flows in fiscal 2024. Notably, the company returned a record $22 billion in cash to its shareholders in FY24, up 45% year-over-year, via dividends, buybacks, and eliminations.
In terms of valuation, the stock is trading at 34.83 times forward adjusted earnings, well above the sector median of 25.33x and its five-year average of 19.65x. Although AVGO appears expensive at current levels, its top-line momentum, robust free cash flow margins, and solid revenue guidance for the quarter in progress may justify its valuation.
What Do Analysts Expect for AVGO Stock?
Overall, analysts have deemed Broadcom stock a “Strong Buy,” with a mean target price that shares have already surpassed. Among the 33 analysts offering recommendations for the stock, 30 recommend a “Strong Buy,” while the remaining three suggest a “Hold” rating.
Tech Stock #3: Pure Storage
Valued at a market cap of $21 billion, Pure Storage (PSTG) provides enterprise data storage and management solutions. The company played a significant role in modernizing data infrastructure, advocating strongly for the use of flash memory in storage, the development of a container data management platform, and the creation of a Storage-as-a-Service Platform. Its offerings are centered around the Purity software, which provides enterprise-class data services such as data reduction, protection, and encryption across block, file, and object storage protocols.
Shares of the data storage company have soared 83% year-to-date.
William Blair’s View on PSTG Stock
Blair noted that the data storage company is a pioneer in flash storage, thanks to its direct flash module technology. The analysts stated that its recent win with a hyperscaler is viewed as a “game changer,” since Pure Storage will supply all online storage for the company’s next-generation data centers.
“While material contribution is not expected until calendar 2026/fiscal 2027 (we estimate 5%-10% of total Pure revenue given an expectation of ‘double-digit exabytes’ of deployed storage), the deal underpins the large hard disk replacement opportunity within hyperscaler environments and augurs well for future design wins for Pure’s DFM technology,” the analysts wrote.
The analysts added that the company has also made share gains in the enterprise sector (beyond the hyperscaler win) due to its capability to cater to various storage use cases, product offerings, and “strong channel partnerships.” PSTG is also expected to benefit from tailwinds associated with generative AI, including machine learning, inferencing, and infrastructure modernization.
At the same time, the firm highlighted several key risks, including intense competition in the enterprise storage market, the migration of applications and data to the public cloud, fluctuations in NAND pricing, revenue headwinds from its storage-as-a-service offering, near-term margin concerns, and potential macroeconomic issues.
Recent News for PSTG Stock
On Dec. 3, Pure Storage revealed a partnership with Kioxia Corporation to create advanced technology aimed at meeting the increasing need for high-performance, scalable storage infrastructure in today’s hyperscale environments. By integrating Pure Storage’s advanced data storage platform with Kioxia’s cutting-edge QLC flash memory, hyperscalers can meet increasing data demands while maintaining high performance. Advantages include enhanced performance, better cost efficiency, and reduced power consumption and waste.
PSTG Spikes on Solid Q3 Results & Guidance
On Dec. 4, PSTG stock soared over 22% after the company posted Q3 results and guidance that exceeded Wall Street’s expectations as well as secured a significant design win.
Pure Storage reported a 9% year-over-year increase in total revenue to $831.1 million, beating expectations by $12.96 million. The total revenue growth was fueled by an increase in subscription services revenue. Notably, the company is transitioning toward a subscription-based model, as evidenced by subscription-based revenue rising from 40.6% of total revenue in the second quarter to 45.2% in the third quarter. With that, its subscription revenue increased 22% year-over-year to $376.4 million, and subscription Annual Recurring Revenue (ARR) also rose 22% year-over-year to $1.6 billion. This indicates the company’s successful transition to a subscription-based business model, which is expected to support its long-term growth.
Meanwhile, Total Remaining Performance Obligations (RPO), encompassing subscription services and product orders, increased by 16% year-over-year to $2.4 billion. This growth was lower than anticipated, affected by smaller-than-expected total contract value (TCV) sales of its Evergreen//One offering. TCV represents the total revenue a company anticipates receiving from customers throughout the duration of their contracts. In Q3, PSTG recorded $96 million in TCV from its storage-as-a-service offerings.
Turning to profitability, the non-GAAP gross margin remained strong at 71.9%, supported by a robust subscription services gross margin of 77.4% and a solid product gross margin of 67.4%. The product gross margin was shaped by the company’s strategic initiatives to assist customers in transitioning cost-sensitive workloads to its //E family and FlashArray//C solutions. PSTG posted adjusted EPS of $0.50, beating the consensus by $0.08.
At the end of the third quarter, the company held $1.6 billion in cash and investments, with no long-term debt.
While the Q3 results exceeded expectations, the primary catalyst for the outperformance and positive market response was the company’s big customer win. Chief Executive Officer Charlie Giancarlo revealed the hyperscaler win during the company’s third-quarter earnings call. Notably, management specifically referenced the top four hyperscalers rather than the top two, three, or five, leading the market to speculate that Meta Platforms (META) is Pure Storage’s latest win. Giancarlo views this win as significant because it indicates a potential major shift by the world’s largest storage users toward flash storage for standard storage needs, which could significantly fuel its revenue growth.
For the quarter in progress, management is projecting revenues of $867 million, which comfortably surpasses the consensus estimate of $856.93 million. For FY25, management is guiding for sales of $3.15 billion, once again exceeding the consensus.
PSTG Valuation and Analysts’ Estimates
Analysts tracking the company expect a 19.1% year-over-year increase in its adjusted EPS to $1.67 for fiscal 2025, while revenue is anticipated to grow 11.38% year-over-year to $3.15 billion.
Meanwhile, the company returned about $182 million to shareholders in the third quarter through the repurchase of 3.6 million shares.
In terms of valuation, the stock’s forward P/E Non-GAAP multiple stands at 38.58x, which is about 52% higher than the sector median of 25.33x, though below its five-year average of 69.51x. I believe the stock is reasonably valued at current levels, given its growth catalysts.
What Do Analysts Expect for PSTG Stock?
Analysts have a consensus rating of “Moderate Buy” on PSTG stock, with an average price target of $73, which indicates upside potential of 12%. Out of the 21 analysts covering the stock, 12 recommend a “Strong Buy,” two advise a “Moderate Buy,” six give a “Hold” rating, and the remaining one considers it a “Strong Sell.”
