In case you missed it, technology stocks have been enjoying a golden decade. The Nasdaq Composite, an index made up of many of the top U.S. IT stocks, has outperformed more diversified benchmarks such as the S&P 500 over the past one-, three-, five-, and 10-year periods, led by compelling performances from technology companies like Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), and Amazon.com (NASDAQ:AMZN).
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Many of these leading IT stocks remain fantastic investments, even as their market caps continue to swell to once-unfathomable heights. So let's further examine what makes these tech giants compelling stocks to buy today.
What makes Apple a top IT stock
Apple shares have been on quite the tear lately, gaining 46% over the past 12 months. However, the world's largest tech company sports some of the strongest fundamentals in in the industry and should be strongly considered as a core technology stock for many long-term portfolios.
Thanks to the popularity of its iEmpire of consumer electronics, Apple's annual revenue consistently exceeds $200 billion. Moreover, the company's high-end price points give it a plum profit margin -- 39% on average over the past five years -- which makes the company a cash cow whose net cash balance is $158 billion and growing. The much-anticipated release of the iPhone 8 later this year and a host of potential high-impact projects should enable Apple to remain a top IT stock for years to come.
What makes Alphabet a top IT stock
The company that rules the Internet, Alphabet -- much like Apple and Amazon -- has only continued to strengthen its dominant business model in recent years. High-profile initiatives such as self-driving cars, Internet-beaming balloons, and the like make Alphabet seem like the corporate equivalent of a sixth-grade science experiment on steroids. However, in terms of tracking its profit generation, Alphabet is fairly straightforward. The company's original Google search and online advertising business generates nearly all the company's sales and profits. Better still, research continues to show that Alphabet and Facebook continue to capture increasingly large shares of the online advertising market.
The future remains bright for Alphabet. The online advertising market remains ripe for consolidation; analysts expect the space to grow from $550 billion in 2016 to $724 billion in 2020. Moreover, as often detailed by the press, Alphabet is fast at work developing new, innovative technologies. The company, like the others on the list, is busy skating where the puck is heading, and that tends to be a highly profitable strategy in the world of investing.
What makes Amazon a top IT stock
The top e-commerce company in the world has been in operation for more than 20 years now, but, in many ways, Amazon is just getting started, a fact many investors overlook. In this vein, it's important to consider the revolution Amazon is spearheading in the way we buy and sell items, and the true enormity of its growth potential.
At the end of last year, e-commerce accounted for just 8.3% of all U.S. retail sales. The number is strikingly similar worldwide, where an estimated 8.7% of all retail transactions occurred online in 2016, according to eMarketer. It's difficult to estimate the exact percentage of retail transactions that can and should take place online, but it's probably safe to say the long-term figure is substantially higher than the high single digits. And rest assured, Amazon intends to capture as much of this future market share as reality will allow.
The company's e-commerce dominance, plus its high-margin Amazon Web Services cloud segment, have Wall Street estimating Amazon will grow its EPS at a 29% average annual rate over the next five years.
Of course, achieving this goal won't happen quickly or without its fair share of challengers. In that vein, regional e-commerce companies such as MercadoLibre in Latin America are fast at work establishing their own e-commerce ecosystems. Similarly, American retail power Wal-Mart seems to finally have given e-commerce its appropriate focus; I believe its 2016 acquisition of Jet.com will be looked back on as a watershed moment for the company.
However, Amazon is a unique company in many respects. Its extremely long-term focus and its ability and willingness to create innovative solutions to pain points throughout the global retail supply chain is without equal. There's enough room to accommodate multiple large-scale winners in the global retail industry, where sales are expected to rise to over $27 trillion by 2020, but Amazon remains the top pick in this space. Like Apple and Alphabet, it's one of the best technology stocks to own right now.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and MercadoLibre. The Motley Fool has a disclosure policy.