Technology has been the best-performing sector in the United States for decades. Indeed, the Nasdaq 100, an index made up of the biggest tech firms, has grown by more than 160% in the past five years. In contrast, the S&P 500 and Dow Jones have risen by more than 75% and 70%, respectively.
Nasdaq 100 has outperformed the S&P 500 and Dow Jones
Investors love technology companies like Microsoft, Facebook, Amazon, and Apple for four main reasons. First, these companies control a sizable market share in the industries they operate. For example, Amazon is the biggest cloud provider and also the biggest e-commerce firm in the world. Also, Google and Facebook have a sizable moat in online advertising.
Second, these firms have faster growth than those in other industries. For example, the revenue of Netflix has grown from $2 billion in 2010 to more than $20 billion in 2019. Third, some of these firms are highly profitable. For example, a fintech company like Visa has a net profit margin of more than 50%. Finally, some of the biggest tech firms have an excellent balance sheet. So, let us look at the best technology stocks you should buy and hold forever.
Established in 2004, Facebook has become the biggest social media company in the world with a market cap of more than $782 billion. It is also the second-biggest online advertising company after Alphabet. And its platforms are used by more than 2 billion users every day.
Facebook is a good investment for several reasons. Almost 20 years since it was started, the company’s revenue is continuing to grow. Its annual revenue has grown from more than $1 billion in 2019 to more than $70 billion in 2019. And analysts expect this revenue will reach more than $238 billion in the next decade.
The company has a sizable share in online marketing, has an excellent balance sheet with more than $54 billion in cash, and has limited competition. Most importantly, it has more avenues to make money like payments and e-commerce.
Facebook vs Nasdaq 100 – 5-year chart
In the past two decades, Amazon has become the third-biggest company in the world with a market value of more than $1.6 trillion. The firm has achieved this by becoming the market leader in e-commerce and cloud computing. No company comes close.
Amazon is one of the best technology stocks to invest in for several reasons. First, as mentioned, it has the biggest market share in e-commerce and has become the go-to platform for Americans to buy almost anything. It has solidified this moat by providing the Amazon Prime service that has more than 150 million members who pay about $110 every year. This service makes it almost impossible for other e-commerce companies to compete with it.
Second, Amazon has the biggest market share in cloud computing, one of the fastest-growing industries in the world. According to Gartner, the company commands more than 45% share in the public cloud. In addition to these, the company has become highly profitable and is a big investor in some fast-growing companies like Rivian, Jio, and Deliveroo, among others.
Amazon vs Nasdaq 100 5-year chart
In the past decade, Apple has grown from a relatively small computer maker to the biggest firm in the world worth more than $2 trillion. The company has achieved this by having a sizable market share in the premium smartphone industry. It has also launched new products like the iWatch and Homepod. As a result, it has seen its revenue grow from more than $65 billion in 2010 to more than $260 billion in 2019. Its net income has grown from $14 billion to more than $56 billion.
There are other reasons why Apple is a great tech company to own. First, it has a solid balance sheet, with more than $100 billion in cash. Second, it has among the best free cash flows in the world, meaning that it can offer a good dividend to shareholders. It had more than $58 billion in FCF in 2019. Third, Apple has more than 500 million paying customers in its service business, which includes products like AppStore and Apple News.
Apple vs Nasdaq 100 5-year chart
Like Apple, Microsoft has grown from a relatively small software company to the second biggest company in the world with a market cap of more than $2 trillion. The company has grown both organically and using acquisitions to become a diversified conglomerate with a sizable share in several industries. For example, its Microsoft Teams product is the biggest communication and collaboration product in the world. Similarly, its Azure product is the second-biggest cloud provider in the world.
There are other reasons that make Microsoft a good long-term investment. First, the company’s revenue and net income have been in rapid growth in recent years. Its revenue has grown to more than $143 billion and analysts expect it will reach almost $400 billion in the next decade. Second, it has a solid management team. Third, it has a strong impenetrable moat in most industries it competes in.
Microsoft vs Nasdaq 100 5-year performance
Advanced Micro Devices (AMD)
AMD is a technology company that provides chips and graphics cards to consumers and companies. While AMD is an old company started in 1969, its fortunes as a leading contender in the chip industry have changed recently. Today, the company has grown its market share in the chip industry, partly because of the problems facing Intel, its biggest competitor.
There are several reasons why AMD is one of the best technology company stocks to own. First, its market share against Intel is rising as shown in the chart below.
AMD has improved its market share against Intel
Second, AMD is a key player in industries that are seeing impressive growth like gaming, data centres, and artificial intelligence. Third, like in the processor industry, AMD has grown its share in the graphics card (GPU) industries.
AMD has outperformed the Nasdaq 100 by far
The coronavirus pandemic has taught people and investors the important role technology is playing in our lives. Through technology, millions of people are working from home and students are learning. Therefore, the sector will continue to grow in the next decades. As such, we believe that these five stocks will continue playing a role in the current digital revolution. Other technology stocks worth investing in are Salesforce, Zoom Video, Lemonade, and Spotify, among others.