Technology can be a challenging industry to invest in over the long term because of the constant innovation that threatens market leaders. However, it's not impossible. I've searched far and wide to identify a basket of dominant tech leaders that are best at what they do and aren't likely to give way to competition anytime soon.
The companies below are primarily established at this point but still offer potentially solid investment returns over the coming decades due to tailwinds still in their early stages. If you're willing to let elite industry leaders do the heavy lifting in your portfolio, consider looking into these five technology stocks.
1. Nvidia
Artificial intelligence (AI) stocks are all the rage today, and none have gotten more recognition than Nvidia (NVDA 6.18%). The semiconductor company built a business on gaming graphics processing units (GPUs) but has taken market share across industries that require dedicated GPUs for high-performance computing needs. That includes AI applications, where analysts estimate Nvidia commands an 80% to 95% market share.
NVDA Revenue (TTM) data by YCharts.
That's an ample opportunity, considering the global AI industry could be worth trillions over time. While the stock has run a staggering 195% since January, it still trades at a forward price-to-earnings ratio of 55, on par with last summer, despite a much better earnings growth outlook moving forward. Investors holding for years, not months, should see the company grow into its valuation and beyond over the next decade.
2. Apple
Everyone knows consumer electronics giant Apple (AAPL -0.35%) for its iPhone, but the recent unveiling of its Vision Pro put the company on this list. The augmented/virtual reality headset means a brand-new product category for the company, which has traditionally scaled many products (iPhone, Apple Watch, AirPods) to become multibillion-dollar businesses.
AAPL Revenue (TTM) data by YCharts.
But for now, the iPhone still dominates Apple's business. The company generates nearly $100 billion in annual free cash flow, which Apple can use on dividends and share repurchases. The iPhone has replaced countless daily tools and devices, and people spend hours on their phones daily. Until that changes, investors can buy Apple and sleep well at night.
3. Tesla
Electric vehicle (EV) company Tesla (TSLA -1.11%) has turned the automotive industry on its head, pioneering EVs and establishing electric technology as the future of transportation. Despite Tesla growing to nearly $800 billion in value, the company's story is far from finished. EVs still represent a low-single-digit percentage of the world's active vehicles. Even if competition dilutes Tesla's market share over the years, the pie is still poised to multiply in size, which should give Tesla a green field of growth moving forward.
TSLA Revenue (TTM) data by YCharts.
This goes beyond Tesla's current products like the Model 3 and Model Y. Tesla has several short-term products such as the Cybertruck, Tesla Semi, and autonomous driving ramping up, as well as a long-term pipeline with new technologies like AI and Tesla Bot. With so many irons in the fire, just a few successes can take Tesla and its shareholders' portfolios to new heights.
4. Taiwan Semiconductor
If semiconductor chips are the building blocks of technology, Taiwan Semiconductor (TSM 1.26%) is the pick-and-shovel investment for the technology sector. The company is the world's leading semiconductor manufacturer, responsible for building chips for many of the world's biggest semiconductor names, including Nvidia. Taiwan Semiconductor builds nearly 60% of the world's semiconductor chip supply!
TSM Revenue (TTM) data by YCharts.
With such massive manufacturing capacity, the company can build chips better and for less money than most of its competitors. Plus, the world's appetite for semiconductors should only grow over the next decade and beyond. The global semiconductor market is worth approximately $600 billion. It could grow beyond $1 trillion by the decade's end, which could spell years of growth ahead for the world's leading chipmaker.
5. Broadcom
Connectivity in personal devices, data centers, and industry has grown tremendously over the past decade, which has propelled Broadcom's (AVGO 3.84%) business to new heights. The semiconductor and enterprise software company specializes in networking, connected devices, and just about anything that sends or receives data. That could continue as autonomous vehicles, 5G, and the Internet of Things potentially bring new market opportunities over the coming years.
AVGO Revenue (TTM) data by YCharts
Additionally, Broadcom is investing aggressively in building an enterprise software business to diversify away from relying on its chip businesses. The company has a pending $61 billion acquisition of cloud services company VMware, which will expand its existing suite of enterprise software products. Broadcom's products are on the right side of a long-term trend of securely moving information worldwide, so the future looks bright for the stock too.
