Investors should make a point of maintaining a sector-diversified portfolio. Not only will doing so sidestep the impact of one particular sector falling out of favor at the worst possible time, but this diversification will also take the edge off the broad market's volatility.
On the flip side, no investor can afford to ignore the fact that technology stocks have consistently been the most rewarding sliver of the market for nearly three decades now.
To this end, here's a closer look at three prospective tech names that could help you become rich -- or richer -- by the time you retire.
1. Taiwan Semiconductor Manufacturing
What if investors are too focused on the hunt for the next great microchip to notice most chip designers and developers don't actually manufacture their own silicon? The bulk of them punt the production work for semiconductors and processors to a third party that's equipped for mass manufacturing this tech.
Enter Taiwan Semiconductor Manufacturing (TSM +0.42%), better known as TSMC. Just as the name suggests, this company makes semiconductors on behalf of most of the major technology powerhouses. Its customer list includes Advanced Micro Devices, Nvidia, and Apple, just to name a few. In fact, Trendforce estimates TSMC alone accounts for more than half the world's semiconductor manufacturing.
NYSE: TSM
Key Data Points
That doesn't make it bulletproof, or recession-proof. If Apple or AMD run into an economic headwind, they're going to scale back on orders. TSMC's revenue is also subject to developmental fits and starts. Year-over-year sales were curbed in late 2011 and again in 2015, with the former linked to the strong launch of AMD's "A" series CPUs earlier that year, while the latter slowdown is arguably the result of no new meaningful developmental leaps for CPUs around that time.
TSMC has so many customers, and demand for semiconductors is so consistent, that these slowdowns barely even register as a blip. Double-digit sales growth is the norm here, with this year's revenue growth expected to exceed 28% despite the industry's logistics hassles. Next year's projected top-line growth is a cooler 14%, but still in the company's typical growth range.
2. International Business Machines
Yes, this is the same International Business Machines (IBM 0.56%) that's more colloquially called IBM, and the same company that lost its battle with relevancy a decade ago. Much has changed in the meantime.
Chief among these changes is the organization's focus. Gone are the days of mainframes and motherboards. The new-and-improved IBM is all about cloud computing. Leveraging its 2019 acquisition of Red Hat, IBM is directly addressing what CEO Arvind Krishna says is a trillion-dollar hybrid cloud computing opportunity that maximizes the web's functionality. It's not just hardware, though. In fact, systems are only a means to a much bigger end.
NYSE: IBM
Key Data Points
Speaking at Bank of America's recent 2022 Global Technology Conference, CFO James Kavanaugh said: "When we land a hybrid cloud platform [customer], there's an economic multiplier on top of that, $3 to $5 a software for every dollar of platform we land, $6 to $8 of services for every dollar of platform we land. And we're seeing that play out in our consulting business today."
In other words, this company isn't just selling systems. It's selling complete solutions that generate reliable recurring revenue.
And it's working. Last quarter's revenue growth of 11% (on a constant-currency basis) was led by a 15% constant-currency uptick in software sales and a comparable 17% improvement in consulting revenue.
The stock is still volatile, and still priced where it was back in mid-2018, indicating investors still don't know what to think of IBM's overhaul. However, the stock has resisted most of the recent marketwide weakness, suggesting that more and more investors are becoming believers.
3. Microsoft
Finally, add Microsoft (MSFT 1.57%) to your list of top tech stocks that could help you become rich by retirement.
It would be easy to conclude that Microsoft's best days are behind it. Smartphones and tablets are still displacing computers as consumers' first choice for connecting to the internet, and a wide range of alternatives -- many of them free -- can now do the job that Microsoft's Office productivity software does.
NASDAQ: MSFT
Key Data Points
What this worry overlooks, however, is that this company has become so much more than operating systems and office productivity suites. Its Azure cloud computing management platform has led the company to roughly 21% share of the worldwide cloud computing market, according to data from Synergy Research Group -- though Synergy also says Microsoft's share is the fastest-growing among all the major names in the business. The company is also the maker of the Xbox video gaming console, the owner of professional networking website LinkedIn, and offers a wide array of business-oriented tools (like ad-campaign managers and online collaboration) that the average consumer never hears about or ever uses.
That said, personal productivity software is still a huge piece of the organization's revenue mix. It's just sold differently. Now largely aimed at businesses rather than consumers and rented rather than outright bought, last quarter's 14% constant-currency improvement in cloud-based Office 365's revenue contributed to the $15.8 billion worth of revenue driven by Microsoft's Productivity and Business Processes arm.
The built-in diversity of all these profit centers is a big deal. Bigger still is the reality that demand for all of them is never going to go away, now that consumers and corporations alike are addicted to their tech.
