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The tech sector continues to be a driving force in the market, but with so many options, it can be tough to know where to invest. Here's where the Zacks Rank can be a valuable tool.

We've identified three tech stocks – Amazon (AMZN), Spotify (SPOT), and ASML Holdings (ASML) – that not only boast innovative products and services but also hold coveted Zacks Rank #1 (Strong Buy) ratings. Let's dive into why these tech giants should be on your watchlist, or even better, in your portfolio right now.

Stocks Amid an Epic Bull Market

This market is undeniably strong and seems to make new record highs daily. How can investors best take advantage of a raging bull market like we have today?

In a market regime like this, the best approach is to seek stocks that are expected to outperform the market, but with limited downside risk. My preferred method of doing this is screening for stocks that have top Zacks ranks and are showing relative strength against the market index.

Even better if they have thematic tailwinds like Artificial Intelligence, Cloud Computing and Digital media transformation.

Additionally, we should try to avoid stocks that have uber-high valuations as well, as they increase the downside risk.

In the chart below we can see that each of the stocks picked today are displaying impressive momentum and are outperforming the market year to date.

Image Source: Zacks Investment Research

Amazon: Cheapest Valuation in a Decade

First up, we have the e-commerce behemoth, Amazon. While some might hesitate due to the recent market pullback, there are compelling reasons to consider AMZN. For one, Amazon is currently trading at its cheapest valuation in a decade.

Today's forward earnings multiple of 41.2x sits well below its 10-year median of 97.3x, presenting a deep historical discount.

This attractive valuation comes despite Amazon's continued dominance in e-commerce and its cloud computing arm, Amazon Web Services (AWS). AWS is a major growth driver for the company, boasting a dominant market share in the cloud computing industry.

This segment is expected to keep expanding rapidly, providing significant tailwinds for Amazon's future earnings.

Further bolstering the case for AMZN is the company's impressive earnings growth trajectory. Analysts are projecting a robust 29.6% annual growth in EPS over the next 3-5 years.

This combination of a discounted valuation and strong earnings growth makes Amazon a compelling investment opportunity for those seeking exposure to the ever-growing tech sector.

Image Source: Zacks Investment Research

Spotify: Huge Earnings Growth Drives Stock Appreciation

Next on our list is the music streaming giant, Spotify. While some investors might be wary of companies with limited profitability, Spotify's future looks bright. Earnings are turning positive in a big way this year and analysts are forecasting a staggering 76.1% annual growth in earnings per share (EPS) over the next 3-5 years. This explosive growth potential is a major reason why investors are taking notice.

Because of these tremendous growth forecasts in earnings, Spotify enjoys a relatively discounted valuation. Today, SPOT is trading at a forward earnings multiple of 60x, which is extremely high. But with the earnings growth forecast, it has a PEG ratio of 0.8, which is a discount based on the metric.

Spotify isn't just about impressive forecasts; it's also delivering on the stock price front. The company has experienced powerful stock price momentum, indicating strong investor confidence in its future. This combination of sky-high EPS growth forecasts and a surging stock price makes Spotify a compelling option for investors seeking high-growth potential in the tech sector.

Image Source: Zacks Investment Research

ASML Holding: Critical AI Infrastructure

Rounding out our list is ASML Holdings (ASML), a Dutch company that holds a near-monopoly in the production of photolithography machines. These machines are the unsung heroes of the modern tech world, responsible for etching the intricate patterns on silicon wafers, the foundation of computer chips.

Because of its mission critical status in the production of semiconductors, it has very long-term growth tailwinds thanks to technology’s endless creep into our lives. Furthermore, it plays a crucial role in the function of Artificial Intelligence, as its machines will be required for the development of chips used in the technology.

In addition to its Zacks Rank #1 (Strong Buy) rating, ASML Holdings also boasts a very bullish technical setup.

ASML stock has been coiling and breaking out all year, and if the stock can trade above the $1,100 level, would again signal another imminent leg higher.

Image Source: TradingView

Bottom Line

The tech sector remains a powerhouse, offering exciting opportunities for investors. As earnings season approaches, we can anticipate further confirmation on how these companies are executing in this environment.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

ASML Holding N.V. (ASML) : Free Stock Analysis Report

Spotify Technology (SPOT) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.