The Top Tech Penny Stocks Right Now

*Stock data from March 5, 2020

What Are Tech Penny Stocks?

A penny stock is generally defined as any stock from a small company that trades for less than $5 per share. The good news about this is that shares of a penny stock are cheap to acquire.

For example, say you have $10,000 to invest, and you are looking to invest it all in one stock (pretend you have a lot of other money in a well-diversified portfolio). If ABC penny stock is trading at exactly $5, you would be able to afford 2,000 shares of the stock.

Now compare that with Alphabet (Nasdaq: GOOGL), Google’s parent company. As of this writing, Alphabet is trading around $145 per share. If you invested all of your money, you would be able to afford only seven shares of the stock. That’s a big difference from the ABC penny stock.

This creates a low barrier to entry for penny stocks. You might think this makes them good stocks for beginners to invest in. It does not. Beginners should focus on higher-valued, less-risky stocks.

There are plenty of larger cap tech stocks for investors to pursue in the stock markets. But a more experienced investor may be looking to cash in on opportunities with microcap tech stocks.

If that’s the case for you, here are some things to think about when investing in tech penny stocks.

Why Are Tech Penny Stocks Valued So Low?

Two reasons could factor into why a tech penny stock trades for such a low dollar amount. They are: 

Because the company is a newer startup or a startup that hasn’t been able to grow beyond a small size. Or, because it’s a larger, older tech company that has in some way stumbled.

When a new tech company starts up, it generally does not have much in the way of earnings. There could be a number of reasons for this as well.

For example, let’s say a new blockchain as a service (BaaS) company is just bringing its product to market. This blockchain company may have a great product. But nobody knows about it yet.

It will take time for marketing and sales to spread the word about this new company and its product. Meanwhile, the BaaS startup still needs to handle all the costs of running a new business.

Costs and Earnings

Another reason that a new startup may not earn much money is because even if revenues are growing wildly, costs may be as well. Mounting costs from sales, marketing, research and development, information technology, and more can increase just as quickly as revenues.

Once the word has spread and the company has gotten its costs under control, earnings have the potential to skyrocket. This is the time when tech penny stocks have the opportunity to make you a lot of money.

Potentially, if the product is a hit, the stock may increase well above $5. Then the stock will no longer be a penny stock at all. You could double or triple your money. Or make even more.

It took Amazon (Nasdaq: AMZN) about five years after going public to start consistently earning profits. In 1997, you could pick up shares of Amazon for less than $5 per share. Today it trades at about $1,900. From $5 that’s a gain of 37,900%. 

That’s the power of investing in tech penny stocks.

Which Tech Penny Stocks to Buy?

“I want to buy some tech penny stocks!” you say. Great! Which ones? How do you decide?

One way to decide is to take a look at the various types of tech industry businesses and decide which ones have potential for the future.

Look at the Industries

Some of the tech penny stock companies you want to look at may fall under the following categories:

• Artificial intelligence (AI) penny stocks – Artificial intelligence is technology that mimics human intelligence to analyze complex data and optimize for performance. It is becoming a more prevalent technology as companies like Google and Microsoft (Nasdaq: MSFT) pour in investments. In 2018, the AI market was valued at $23.94 billion.
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• Nanotechnology penny stocks – Nanotechnology stocks are tech companies that deal with tiny technologies at the nanoscale (think 1/90,000th the width of a single human hair). Not only does this have major implications for industries like supercomputing, but nanotech is becoming more important in the healthcare, pharmaceutical and biotechnology industries for combatting diseases (like COVID-19, the disease caused by the novel coronavirus).
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• Cybersecurity penny stocks – Doesn’t it seem like the world is always becoming more dangerous? This is especially true when it comes to the internet, where hackers seem to lurk everywhere. As a result, cybersecurity stocks are going to become increasingly important going forward. The company that can break the next big thing in cybersecurity tech may go from a few bucks per share to hundreds per share in a short amount of time.

Examine Individual Companies

Once you’ve identified industries and areas of the tech sector that interest you, it’s time to start looking at individual companies within those areas in which to invest.

One way to do this is to look at the fundamentals of potentially attractive companies. Now, tech penny stocks are not likely to have tons of consistent earnings. After all, if they did the valuation would be driven higher and they might no longer be penny stocks.

But there are plenty of other signals to be looking for.

Factors to Examine

• Revenues – Are revenues increasing quarter over quarter and year over year? As time goes on, you want to see that the company is driving sales of its product. If nobody wants to buy it, this does not bode well.
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• Costs – Many newer and small tech companies don’t have much in the way of earnings because costs are high. While revenues go up, you’d also like to see the company become more efficient at lowering its cost structure. After all, your profits are what’s leftover from your sales after you subtract out costs.
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• Cash flows – Is the company generating cash from its earnings? Or is it having a liquidity problem because too much cold hard cash is flying out the door to handle liabilities, long and short term? Cash is king, and a lack of it due to poor cash management may spell future troubles.

• Debt – When you borrow, there will come a time to pay the piper. Some debt financing is fine, but you want to ensure that the company is not in eventual trouble of default. If they are, this could spell potential doom for your investment.

• A great product – Why does the company exist at all? To make money, to be sure. But hopefully they are doing so by offering a genuinely great product that other companies do not have (or don’t market well). Believing in the product that the company is selling goes a long way.
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• A great management team – A company is made up of people, and you need great leaders to have a great company. Do you believe in top management’s handling of the company? If so, this may be the most important signal of all that a tech penny stock is a smart investment.

Final Thoughts on Tech Penny Stocks

Tech stocks can be risky. Penny stocks can be even riskier. With their powers combined, these stocks are probably too risky for some investors.

On the other hand, with lots of risk comes even greater potential for reward. So if you can handle the uncertainty of these investments, there’s a lot of money to be made.

And there is a world of other penny stocks to consider too, such as marijuana penny stocks. And with the ability to trade penny stocks on Robinhood, it’s never been easier to invest.

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