How to trade the best tech stocks in the world
Technology is all around us. We explain how to trade technology, and outline 20 of the top technology stocks to consider.
What you need to know about investing in technology stocks
Technology is an all-encompassing term. It has, and continues to, revolutionise every industry and is becoming more integral to everyday life. It covers hardware manufacturers that make everything from smartphones to self-driving cars, to software that helps with everything from creativity to productivity. It sits at the heart of the new breakthrough areas that are set to take the world to the next level of technological brilliance, including cloud computing, artificial intelligence (AI), blockchain, the internet-of-things (IoT), 5G, and spaceflight. The bottom line is that technology cannot be ignored.
The industry is large: the five most valuable publicly-listed businesses in the world are technology stocks. It is also diverse, homing companies that are established and cash-rich as well as fast-growing companies that are burning through cash to disrupt the market. Some pay reliable dividends, others have rewarded shareholders through rapid share price appreciation (and many have done both).
It has also been among the best performing sectors for equities. For example, the Dow Jones US Technology Index has jumped 103% over the past five years compared to the 59% lift seen in the DJIA. The same is true in the UK, with the TechMark All-Share up 41% since late 2014 compared to the measly 16% rise in the FTSE All-Share.
But tech stocks are not all reward and without risk. Companies must consistently invest huge sums to keep up with the pace that technology is developing. A company can become irrelevant overnight if another makes a breakthrough. The sector has experienced bubbles before such as the dot-com crash, and questions are being asked about how some are valued following the arrival of firms like Uber, which has admitted it may never be profitable.
How to trade technology
Trading involves speculating on the future direction of prices. You don’t own the shares outright or benefit from any dividends that are paid, but you can utilise leverage.
You can use IG’s CFD services to speculate on share prices. You can also practice your trading strategy by opening an IG demo account first, which allows you to try out your investment or trading strategy completely risk-free.
You can decide to take a basket approach and consider IG’s FANG Index, which tracks the performance of Facebook, Amazon, Netflix and Google. This allows you to spread the risk when trading and gain broader exposure to the industry rather than just one stock.
Top 20 tech stocks
Technology stocks offer something for all types of investors. Most of the older and more established players pay reliable dividends, making them suitable for income investors. Many of the others that don’t make payouts have instead provided with rapid share price appreciation to match the growth they are delivering.
The 20 biggest technology stocks to consider are:
Microsoft is currently the most valuable publicly-listed business in the world. The company is best known for Windows and its Office suite of computer applications such as Word and Excel, as well as others like Skype, which are licensed out to consumers and businesses. It also owns LinkedIn, which generates money through advertising and subscriptions. Microsoft has a large cloud-computing platform named Azure, as well as cloud-based applications for businesses, Dynamics 365. It makes a number of hardware devices too, including Xbox gaming consoles, Surface tablets and new Nokia mobile phones.
The company’s revenue is almost evenly split between businesses clients, personal computers and cloud computing. Even though Microsoft is one of the older players, it is still experiencing rapid growth thanks to its diversity and ability to adapt: with revenue and operating profit both growing by double digits in its latest financial year. It has consistently raised its dividend, but its yield has been below 2% since the start of 2018.
Apple is mostly known for its hardware: the iPhone, iPads, Macs and the Apple Watch. These are all run on the company’s proprietary software and operating systems and supported by other major applications like iCloud and Apple Pay. Business is slowly turning toward software and services rather than hardware, with Apple boasting its own music and TV applications (and a streaming service is on the way).
Apple and other smartphone makers have been suffering from a slowdown in sales because new phones offer very little incentive to people to upgrade. iPhones still generate over 62% of revenue while services account for just 14%, but more growth is expected from the latter in the coming years. Dividends have experienced sizeable increases over the past five years and the company is not short on cash.
Amazon is regarded as the king of ecommerce and the number one company selling and shipping goods from around the world, quickly and cheaply. However, the company is much more than that. It is the largest cloud-computing company in the world through Amazon Web Services (AWS). Amazon owns Whole Foods, makes an array of devices from Kindle e-readers to Echo smart speakers, and offers a variety of content through video, music and audiobook services – all of which are bundled in its famous Amazon Prime service.
AWS accounts for only 9% of revenue, but makes over three-quarters of Amazon’s operating profit, and while its North American ecommerce business is profitable, its international operations are not. Still, the diversity of its business (and the fact many complement one another) has positioned Amazon as a threat to nearly every industry in the world. Growth is at the heart of the investment case as it does not pay dividends so it can retain and reinvest as much money as possible. Amazon shares have boasted a higher value at the end of every year (versus the year before) for at least the last decade.
Alphabet has been referred to as the home of the Internet thanks to the popularity of the Google search engine and the tendency for people to make it their homepage. But it is home to more than a search engine. It includes the Android operating system that rivals Apple’s iOS, its own cloud-computing division and a host of other software programs and services like Google Play, Google Maps and video site YouTube. It also makes a small amount of hardware and has a number of investments in other firms trying to find technological breakthroughs, like autonomous vehicle firm Waymo.
Although Alphabet has fingers in many pies, the business makes the majority of its money through advertising: whether that is through standard ads on its platforms or by enhancing search results. Alphabet is another giant that does not pay a dividend because it is still focused on growth, but annual share price gains have been reliable since about 2015.
Facebook’s social media site is used by 1.6 billion people every day and over 2.7 billion people use the site or one of its other services – Instagram, Messenger or Whatsapp – every month. The company’s popular services give it unrivalled reach to consumers around the world, and businesses spend huge sums advertising through these social media and messaging services to reach them. Figures from Statista estimate Facebook earns 80% of global advertising spend on social media sites, followed by LinkedIn (4%) and Pinterest (2%).
The Facebook platform remains the money-spinner of the business, but it is facing its own challenges, including a slowdown in growth and criticism over data and privacy issues. Plus, the company has a long way to go in monetising its other services. The company is also looking to bolster its position in payments, including via cryptocurrencies through its Libra project. Facebook does not pay a dividend.
Read more on how to buy and sell Facebook shares
Alibaba has been referred to as the Amazon of China. Like its US peer, Alibaba has several retail and wholesale ecommerce sites including Alibaba.com, AliExpress, TMALL and Taobao, and it has its own cloud-computing business. It also offers a wide array of content and entertainment including gaming and music. Alibaba boasts ownership over one of the largest fintech firms in the world, Ant Financial. It operates on a global scale like Amazon, but roots itself in a faster-growing domestic market.
However, its finances are vastly different to that of Amazon. It has done a much better job in monetising ecommerce – creaming nearly a third of revenue as profit. All of its other activities are loss-making. Alibaba is yet to pay a dividend to shareholders, but the company has bought back stocks from investors.
Visa is one of the largest payment processors in the world, keeping the world of digital currency running. Its technology and platforms connect merchants, buyers, banks and other vital parts of the financial system together. The company’s revenue has naturally grown as the proportion of digital payments grows. It handled over $11 trillion in payments in 2018, up from $8 trillion in 2016, with revenue rising to $21 billion from $15 billion.
Visa has managed to grow net income at even faster rate over that period, nearly doubling to $10.3 billion last year from just under $6 billion in 2016, and the dividend has followed that trend too.
The other major player in the payments game is Mastercard. If you have a bank card in your wallet or purse, then it is more than likely to bear the Visa or Mastercard on it than not. Mastercard is not as big as Visa in terms of payment volumes.
Revenue last year totalled $15 billion compared to $10.7 billion in 2016 and net income climbed to $5.9 billion from $4.1 billion. However, Mastercard’s dividend has grown faster in recent years and is more generous on a per share basis (although it slightly lags in terms of yield at 0.6% versus Visa’s 0.7%).
AT&T is global communications and media business. The company offers TV, mobile and broadband services to over 100 million people in the US. It has also bridged the gap between distributing media and creating it following its major acquisition of TimeWarner (now named WarnerMedia), which sits alongside other well-known brands like HBO. Although the US is a core market for the business it offers mobile and data services in more than 200 countries.
Communications is the company’s core driver, accounting for 85% of revenue and 83% of profit, while WarnerMedia contributes 11% of sales and 15% of income. The company has grown its quarterly dividend payment for 35 consecutive years.
Verizon is AT&T’s smaller peer in terms of revenue, profit and market cap. It has also grown at a much slower rate over the past five years. Verizon competes with AT&T in communications in the US, providing what it calls 'America’s most reliable wireless network'. Nearly 70% of revenue comes from wireless networks with most of the rest coming from running internal networks on behalf of business clients. However, it also owns content creating businesses, with names like Yahoo, TechCrunch and HuffPost under its belt.
Verizon has delivered annual lifts to its dividend for 12 consecutive years.
Disney the brand will need no introduction, but the business model is a bit more complicated. The business stretches well beyond the House of Mouse. Income is primarily generated by its Media Networks division that homes TV stations and networks like the Disney Channel, ABC, ESPN and National Geographic. It has a huge film and studio business that homes the likes of Pixar Animation Studios and 20th Century Fox. It also owns the Marvel and Star Wars film brands. Disney’s third and final segment is its resorts and theme parks.
Over 40% of revenue and 42% of profit comes from Media Networks, while its parks and resorts account for 34% of sales and 28% of profit. Its film divisions generate 17% of income and 19% of profit, with the balance coming from products and interactive media. A lot of attention is on the firm’s new streaming service that aims to capitalise on its vast amount of content, which it has traditionally licensed out to competitors. Disney has paid a semi-annual dividend since 2015 and this has grown each year since.
Intel’s history is embedded in making processors for computers and other devices, but today it is involved in much more. This includes cloud-computing and 5G connectivity. It offers a range of parts such as memory boards and storage components, and provides the equipment needed to underpin all types of devices, from phones to laptops to drones. It also uses its expertise to assist businesses with their technology and IT systems.
The PC and computing market remains the largest part of the business followed by its data centres. Intel has other smaller divisions, including one focused on IoT. The company has proven to be a reliable dividend payer since it initiated payments in 1992, having returned over $180 billion to shareholders.
Comcast is another US telecommunications firm that offers broadband, phone and television services. It owns leading US broadcast channels including NBC and Telemundo, and Sky in Europe. Comcast is home to film production suites like Universal Pictures and Dreamworks Animation, which form the theme of its parks in the US, Japan and (soon) China.
Its cable network underpins the wider business, accounting for a third of revenue and nearly half of adjusted earnings. Broadcast TV generates an equal amount of revenue, but contributes 18% of earnings. One-fifth of revenue comes from its film businesses, but it only makes 8% of profits. Theme parks are proving to be one of the higher-margin areas of the company, making just 16% revenue but over a quarter of all earnings. Dividends have been reliable, rising from 45 cents in 2014 to 76 cents in 2018.
CISCO Systems is a world leader in providing internet networks, supplying businesses, government agencies, utilities and educational institutions. The bulk of its revenue comes from its infrastructure platforms - over 85% of the world’s internet traffic travels across Cisco’s systems – or from related services. The company’s strategy is built around building value for businesses through ‘automation, security, and analytics’, and helping to ‘power a multicloud world’.
The company is global but nearly 60% of revenue comes from North and South America, with 25% from Europe, the Middle East and Africa, and the rest from Asia and elsewhere. Dividends have consistently grown over recent years and accompanied by share buybacks.
Oracle is a computer software giant that sets up and manages IT networks for businesses. The company is best known for its database software, but it also has a suite of products and services. Its Oracle Cloud Software division offers both Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS). It also licences out its own applications that help enhance client’s own network or cloud-computing network, including Java. Oracle offers hardware like servers and data storage units.
The company’s cloud and licensing business accounts for 83% of all revenue and that proportion has grown over recent years. Hardware accounts for 11%, with the rest made up by services. Overall revenue has not experienced much growth over the past five years, but it has improved profitability – net income in the year to the end of May 2019 was its highest on record for several years. Dividends have also steadily grown since the financial crisis.
Salesforce is another software giant but with a focus on customer relationship management (CRM). The firm has been a pioneering leader in CRM software since 1999 and serves over 150,000 businesses. Its CRM platform helps businesses accumulate data and integrate different parts of the business – tracking everything from sales and engagement to marketing and productivity. It makes a point of making software that ‘don’t require IR experts to set up or manage’.
Salesforce only has one operational division but generates most of its revenue through subscriptions and fees it charges for providing professional services to business customers. The company does not pay a dividend.
Adobe is a leading provider of creative software that helps individuals and businesses design and create the digital experiences they need. Some of its better-known applications include Photoshop and Adobe Acrobat PDF readers. The company licenses its products, mainly through subscriptions under SaaS, which account for about 88% of total revenue.
Digital media, which includes its products that allow customers to publish and promote their own content, accounted for 74% of sales last year. Overall revenue has more than doubled over the past five years while net income in 2018 was almost ten times higher than in 2014. However, it still doesn’t pay a dividend.
IBM, often referred to as ‘Big Blue’, is one of the oldest players in the tech space. The firm made its name in hardware after becoming the number one supplier of mainframe computers, but it has evolved over the decades. While hardware remains part of the business today, most of its efforts are put into newer areas such as cloud computing, software and services. Its cloud offering, which focuses on acting as a middleman for those using multiple cloud environments, generates around 40% of revenue. It is also worth noting IBM Watson, which homes it next-generation developments related to everything from AI to IoT.
IBM has seen its revenue suffer over recent years and growth has been hard to come by, which has knocked its profitability too. Still, its dividend has been reliable as ever, and its yield is well above most of the other tech players on this list that make shareholder pay-outs.
Netflix was the first company to bring a video streaming subscription service to the masses – with around 158 million paid memberships in 190 countries. The company licenses content from others but has spent tens of billions on producing its own – expenditure on original content could be as high as $15 billion in 2019. Revenue is broadly split between the US and all its other international markets, and the company is profitable. Sales have trebled over the past five years to almost $16 billion and annual net income last year was $1.2 billion compared to just $266,799 in 2014.
Netflix is regarded as the firm leader in streaming, but its position is weakening. Growth has slowed and there is a number of new major competitors set to enter the space, including Disney and Apple. Reinvestment is therefore even more important at present, so Netflix is not expected to pay a dividend anytime soon.
Last but not least is PayPal, the digital and mobile payments company. Its platform is designed to allow people and businesses to manage and move their money ‘anywhere in the world’. It first went public in 2002 but was quickly bought out by eBay before it was spun-off from the ecommerce site in 2015. Its suite of products includes PayPal, PayPal Credit, Braintree, Venmo, Xoom and iZettle, which primarily make income by skimming fees of the transactions they facilitate. Over half of its revenue is generated in the US, 11% comes from the UK and the rest is made in other international markets.
Revenue has almost doubled over the past five years while net income has more than quadrupled, but it is yet to pay a dividend to shareholders.
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