The 10 Best Technology Stocks

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Editor’s note: Our expert team of analysts employs a precise methodology when choosing stocks. To learn more about our process, see our detailed methodology. Price data is provided by Trading View and is updated daily.

For the past 30 years, going back to the dawn of the Internet Age, technology stocks have driven the markets. Just look at the returns over that period for the Nasdaq 100, an index made up primarily of technology stocks that is considered the ultimate gauge for the sector.

The Nasdaq 100 has posted an average annualized return of 13.9% since May 20, 1994, while the S&P 500 has returned 8.5% on an annualized basis. Of course, technology has changed over the years.

Although we’ve moved through the Digital Age into what now some are calling the AI Age, the tech sector’s dominance in the markets has not changed. Over the past 10 years, the Nasdaq 100 has returned 17.8% per year on average, easily beating the S&P 500, which has returned 10.9%.

While technology stocks can certainly be more volatile, on both a year-to-year basis and in the short term, they have undeniably outperformed over the long term. Looking ahead to the next 10 years or beyond, no one can know for sure what the future holds.

However, given that we are moving deeper into the Digital Age and artificial intelligence (AI) technologies, the tech sector as a whole should remain dominant, and these 10 stocks are the best ones available right now.

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Best tech companies to invest in

Values correct as of May 29, 2024. Source: CNN

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1. Microsoft: Average annualized 10-year return of 26.8%

Microsoft (NASDAQ:MSFT) has expertly made the transition to its second generation under CEO Satya Nadella, and it may be an even stronger company now than it was in the past. In the last few years, Microsoft surpassed Apple as the largest company in the world by market cap.

It has also successfully transitioned from software and personal computing to a leader in cloud computing and AI. Over the past 10 years, Microsoft stock has posted an average annualized return of 26.8%, earning a position among the best-performing “Magnificent Seven” stocks.

With its leadership in intelligent cloud computing, the company has gained market share versus Amazon and is well positioned to continue to grow as it has been a key leader in the AI arms race.

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2. Amazon: Average annualized 10-year return of 28.7%

As one of the world’s largest e-commerce retailers, Amazon (NASDAQ:AMZN) is typically considered a retail stock, but at its heart, it is a technology stock. The company’s groundbreaking technologies have made it one of the first hugely successful online retailers and a leader in cloud computing through its Amazon Web Services (AWS) business.

While Microsoft has made gains in the cloud and Alphabet is ramping up its cloud technology, Amazon still holds about one-third of the market.

Over the past 10 years, Amazon stock has performed even better than Microsoft with a 28.7% average annualized return, and as a market leader in two of its businesses, Amazon should dominate in both sectors for years to come. 

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3. NVIDIA: Average annualized 10-year return of 70.1%

No large-cap stock has been a better performer in recent years than NVIDIA (NASDAQ:NVDA). The semiconductor company specializes in AI-enabled graphics processing units (GPUs) that can handle complex tasks faster than chips from its competitors.

NVIDIA’s chips are used in cars, computers, gaming systems, and other devices, but its primary revenue driver has been data centers, where its clients include Microsoft, Amazon, Alphabet, Meta and others.

Analysts estimate that NVIDIA controls 98% of the GPU market for data centers, where massive amounts of data are processed.

The chipmaker’s returns have been astounding. Last year the stock skyrocketed 239%, and this year, it is already up 86%.

Over the past 10 years, NVIDIA has generated an average annualized return of 70.1%, and as we are just scratching the surface of AI, it should remain a major player for a long time.

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4. Apple: Average annualized 10-year return of 24.4%

Apple (NASDAQ:AAPL) has lagged its Magnificent Seven counterparts in recent years as iPhone sales have slowed, but the second-largest company in the world is not one to sleep in.

Apple stock is only up 3% year to date and has returned just 9.2% over the past 12 months. However, it is trading at a relatively low valuation, so this is a good time to buy or add shares.

The iPhone maker has always been able to adapt and thrive, and it is about to introduce its latest operating system, iOS 18, in June. iOS 18 is said to be Apple’s biggest update in years, incorporating generative AI into its technology.

Even with its recent hiccup, Apple stock has still posted an average annualized return of 24.4% over the past 10 years.

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5. Meta Platforms: Average annualized 10-year return of 23.0%

Of course, Meta Platforms (NASDAQ:META) changed its name from Facebook a few years ago to reflect the next chapter in its development, the Metaverse, through its virtual-reality business called Reality Labs.

At present, Reality Labs represents only a small fraction of the overall revenue, as the business has been slow to grow. However, Meta continues to invest in Reality Labs, seeing it as the future of the entire company.

For now, Meta Platforms remains the dominant presence in social media, owning Facebook, Instagram, WhatsApp and Messenger — four of the seven largest social-media sites — and Threads, which is growing rapidly.

Meta has also undergone major expense reductions to invest in its future growth. Meta stock has posted a 10-year average annualized return of 23%.

 

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6. Alphabet: Average annualized 10-year return of 21.1%

Alphabet (NASDAQ:GOOG) is another tech behemoth, owning Google search and YouTube. The company’s cash cows are Google, the number-one search provider, and the video and streaming platform YouTube.

In fact, Google Services generates almost 90% of its revenue. However, Alphabet also has a growing cloud-computing business, occupying third place with an 11% market share behind Amazon and Microsoft.

The company has also invested heavily in AI and is confident that its new Gemini AI platform, which will be implemented across its various offerings, will challenge the leaders in the AI space and drive its future growth.

Alphabet stock has had an average annualized return of 21.1% over the past 10 years.

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7. Broadcom: Average annualized 10-year return of 35.3%

Broadcom (NASDAQ:AVGO) is another semiconductor company fueled by its AI chips. The company makes chips mainly for wireless connectivity, so it is also poised to benefit from the 5G wireless boom.

Broadcom also makes switches and routers for data centers, so it should be in position to ride that wave as more and more data centers are being built to account for the rise in AI computing.

Last year, the chipmaker acquired VMWare, which produces virtualization software that allows computers to run more efficiently. CEO Hock Tan called the acquisition transformational, as it will diversify and boost Broadcom’s revenue.

Broadcom stock has a 10-year annualized return of 35.3% and is a candidate for a stock split. 

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8. Visa: Average annualized 10-year return of 18.1%

Of course, Visa (NYSE:V) is widely known as a leading credit and payment-processing company, but it is also driven by technology as its network is what powers payments. Visa has what is called a competitive moat, meaning that it has an advantage so strong that it is difficult to pierce.

Visa and Mastercard form a duopoly as the only two major credit-card providers of their kind, while their competitors have closed-loop systems, meaning they are lenders, issuers and processors.

Visa is simply a processor, so it has low overhead and lower risk, and it generates huge profit margins. Visa also performs well in all market cycles and should continue to outperform as the world moves increasingly cash-less.

Visa stock has a 10-year average annualized return of 18.1%.

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9. Taiwan Semiconductor: Average annualized 10-year return of 22.2%

Taiwan Semiconductor (NYSE:TSM) is different from other semiconductor stocks in that it is the leading foundry, or chip manufacturer. That means it doesn’t design the chips; rather, it manufactures them on a massive scale for clients like Apple, Advanced Micro Devices, and Broadcom, among others.

Taiwan Semiconductor is ramping up its production for in-demand AI chips, and while that investment could slow growth in the near term, the company should see significant long-term returns as the leading foundry in the world focused on AI chips.

Taiwan Semiconductor stock has a 22.2% 10-year average annualized return.

 

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10. Palo Alto Networks: Average annualized 10-year return of 31.4%

Palo Alto Networks (NASDAQ:PANW) is the leading provider of cybersecurity solutions for businesses, and its services will be in greater and greater demand as cyber crimes and attacks are expected to increase in the years ahead.

This is a competitive space, but Palo Alto Networks has the advantage of being an established, trusted brand in a business that is sticky, meaning it is complex, costly and challenging to change providers. As an efficient, established player, Palo Alto has solid margins and lots of operating cash flow, which it is investing in its proprietary generative-AI cybersecurity solution, Precision AI.

Palo Alto Networks has a 10-year average annualized return of 31.4%.

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Different types of technology stocks

These 10 stocks represent a fairly broad range of technology stocks. However, they are just a fraction of the tech universe that encompasses a broad range of industries. In the list above alone, we have companies that specialize in semiconductors, hardware, software, social media, cybersecurity and financials.

The Global Industry Classification Standard (GICS) is a methodology developed by MSCI and Standard & Poor’s that assigns companies to a sector based on their businesses. The GICS Information Technology sector includes three broad categories:

  • Software & Services. This includes IT consulting and services, data processing, internet services and infrastructure, application software, and systems software
  • Technology Hardware & Equipment. This includes communications equipment; technology hardware, storage, and peripherals; electronic equipment and instruments; electronic components; electronic manufacturing services; and technology distributors
  • Semiconductors & Semiconductor Equipment. This includes equipment that runs on the electronic properties of a semiconductor material, such as silicon or germanium.

However, technology companies can also be found in the Communication Services sector, which encompasses telecommunications, wireless, and media companies, among others.

The sector also includes stocks like Alphabet and Meta Platforms. These stocks have traditionally been considered technology stocks and still rely heavily on technology.

Beyond that, technology stocks may be found in Consumer Discretionary, where Amazon has been classified, and Financial, which encompasses fintechs like Visa. Thus, when looking for technology stocks, including these other sectors helps to broaden the lens.

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The pros and cons of tech stocks

As mentioned at the outset, technology stocks have driven the markets over the past 30 years, producing the best returns of any sector. In this Digital Age, which is becoming the AI Age, they will continue to be at the forefront of innovation and growth.

That said, technology is among the most volatile of sectors with wilder short-term swings. In other words, while tech stocks enjoy higher highs, they often see lower lows than other sectors when the market is down.

Generally speaking, technology stocks react more negatively to rising interest rates, inflation, and economic slowdowns, as these issues can make it harder for them to invest and grow. They may also be subject to disruptive new technologies that render them less competitive or regulations that make growth more difficult.

Investors should be mindful of the risks in addition to the rewards and invest cautiously, making technology stocks a fraction of a diversified portfolio.

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Choosing the 10 best technology stocks

There may be higher fliers in the technology sector, and there may be new companies that emerge with technologies that turn the industry on its head. However, these 10 technology stocks have not only stood the test of time but also have catalysts that make them the 10 best technology stocks over the long run.

We consider a wide range of factors before choosing the best (technology) stocks for U.S. investors. We take into account the following:

  1. Stock Performance. One of the key factors we look at is the performance of the stock. Specifically, we want to know if the stock has a history of outperformance, consistently beating its benchmarks over the long term. We generally look back at least 10 years, and favor a longer term view than a shorter term snapshot. 
  2. Earnings growth. We examine how consistent the company has been in generating year-over-year earnings growth. Ideally, we are looking for stocks that generate double-digit annual earnings growth on an annual basis over a multi-year period.
  3. Reasonable Valuations. As these are technology stocks, they are going to generally have higher price-to-earnings ratios than value stocks or stocks from other sectors. That said, we want to ensure that the P/E, price-to-sales, and other valuation measures are not unusually high – that is well beyond historical ranges. This could signal that factors other than revenue or earnings are driving the price higher and may not be sustainable.
  4. Market Share. It is important to consider how dominant the company is in its given market or markets. Is this company a leader in its market? Is it among the leaders in multiple markets? Many of the top stocks, like Amazon, for example, are leaders in multiple markets. Market leaders are generally going to have strong earnings power. Also, is the company gaining, or losing, market share?
  5. Competitive Advantages. A key to a company’s enduring success is its competitive advantages. We look at whether or not the stock has advantages over its competitors, whether its scale, pricing power, a product or service that is best-in-class, or a moat that makes its advantages hard to overcome or penetrate.
  6. Growth Catalyst. In addition to any competitive advantages, it is important to look for other growth catalysts that could spur the stock higher. Did it expand into new markets through an acquisition, are there new or pending regulations that could help or hinder the company, are there new products coming, are there changes in the industry? These are just some examples.
  7. Capital/Financial Strength. The foundation upon which a company can grow is its financial or capital strength. We look to see if it has a significant, and growing, amount of operating cash or free cash flow, because that will allow it to invest in its future growth or navigate downturns. Also, we look to see if its debt is reasonable so that a disproportionate amount of earnings isn’t going to pay down debt.
  8. Efficiency. Another key consideration is how efficient the company is in turning a profit. While all industries are different, the operating margins and profit margins will give you a sense of how much a company is spending to generate profit. Higher, and rising, margins mean the company is operating more efficiently.
  9. Stable Leadership. We look at the leadership of the company and how stable it has been over the years. While a lot of turnover in the corner office is a sign of instability, the best companies tend to have longer tenured CEOs and seamless succession plans.10.  Analysts’ Estimates. While we don’t solely rely on what Wall Street analysts think of a company or stock, we certainly gauge their consensus recommendations and price targets in determining the best stocks.

This article originally appeared on ValueWalk and was syndicated by MediaFeed.

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