There’s no looking back for the technology sector, as its players continue to thrive on the growing popularity of cloud-based platforms, AI solutions, AR/VR reality devices, autonomous cars and Internet of Things (IoT).
The year is coming to an end with a remarkable stock market run. The NASDAQ Composite (IXIC), the S&P 500 (GSPC) and the Dow Jones Industrial Average (DJI) have rallied 24.9%, 18.5% and 23.2%, respectively, so far in 2017 (till Dec 14).
Among the various sectors, technology continues to shine, with the Technology Select Sector SPDR ETF (XLK) returning 32.5% year to date.
Substantial growth in cloud computing and Internet of Things, artificial intelligence, gaming and launch of increasingly complex smartphones and consumer electronics suggest that the good times for tech is not to end anytime soon.
What is Driving Technology Sector?
Factors fueling the technology sector are the emergence of cutting-edge technology such as cloud computing, big data, growing adoption of artificial intelligence (AI) solutions, Internet of Things, wearables, VR headsets, drones and virtual reality devices.
High demand for power-efficient as well as high performance chips — essential for running cloud-data centers and processing massive data by using Big Data analytics — machine learning and deep-learning tools has been a key driver of technology stocks.
Moreover, escalating demand for sensors and software for autonomous vehicles, advanced driver assisted systems (ADAS), Augmented/Virtual reality devices (AR/VR) and Internet of Things (IoT) are noticeable catalysts to growth.
The lighting pace at which the 5G platform and technology are evolving is also worthy of mention. Additionally, growing incidents of cyber attack is anticipated to drive demand for cybersecurity software.
Momentum Likely to Continue
With the global economy gathering strong momentum, technology stocks will continue to outperform and are less susceptible to interest rates or deregulation. The twin tailwinds of President Donald Trump’s tax reform plan and a rising interest rate scenario are driving the stocks higher. This is because the tech titans hoard huge cash overseas and are poised to benefit the most from Trump's proposed tax reform policy. In fact, the top five U.S. hoarders are Apple, Microsoft, Alphabet, Cisco and Oracle that hold 88% of their money overseas, according to Moody’s.
Further, most tech companies are sitting on a huge cash pile and are in a position to increase payouts to their shareholders. The cash reserves will ensure that these companies are not plagued by financial trouble in a rising interest rate environment. Adding to the strength is a pick-up in the economy and better job prospects that are giving a solid boost to economically sensitive growth sectors like technology, which typically perform well in a maturing economic cycle.
In view of these bullish sentiments, investing in stocks with big positive year-to-date returns can be a winning strategy.
Using our easy-to-use Zacks screener, we have zeroed in on five technology stocks, which have outperformed the market and gained more than 70% year to date. Further, these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a market cap of more than 1 billion.
Lam Research Corporation LRCX supplies wafer fabrication equipment (“WFE”) and services to the semiconductor industry. The improving WFE market, strong demand for server DRAM and increased adoption rates of 3D NAND technology will continue to drive growth for the company.
Based on the Zacks Consensus Estimate, Lam is anticipated to finish the fiscal year with EPS growth of 47.7% and sales growth of 28.8%. On top of this, Lam is a Zacks Rank #1 stock and has a market of 30.2 billion.
Shares of Lam Research have gained 76.2% year to date, substantially outperforming the 58.7% rally of the industry it belongs to. (Looking for the Best Stocks for 2018? Be among the first to see our Top Ten Stocks for 2018 portfolio here.)
NVIDIA Corporation NVDA is a worldwide leader in visual computing technologies and the inventor of the graphic processing unit (GPU). The company’s sustained efforts toward attaining robust position in several emerging industries such as Artificial Intelligence (AI), deep learning and driverless cars industry, makes us optimistic about its growth prospect.
Moreover, the company’s innovative product pipeline and strength in gaming and high-end notebook GPUs are key catalysts.
Based on the Zacks Consensus Estimate, NVIDIA is expected to finish the current year with EPS growth of 63% and sales growth of 37%. The stock sports a Zacks Rank #1 and has a market cap of 116.1 billion.
Shares of NVIDIA have gained 79.5% year to date, substantially outperforming the 41.7% rally of the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arista Networks, Inc. ANET is engaged in providing cloud networking solutions for data centerand cloud computing environments. The company’s robust product portfolio is driving top-line growth.
Arista is benefiting from robust demand for 100-gigabit routing and switching products, particularly from cloud titans. Moreover, increasing penetration into additional layers of the spine for routing and data-center interconnect is driving top-line growth.
Arista Networks sports a Zacks Rank #1 and has a market cap of 16.9 billion. Based on the Zacks Consensus Estimate, we expect Arista Networks to finish fiscal 2017 with EPS growth of 61.6% and sales growth of 45.4%.
Shares of Arista Networks have gained 138.7% year to date, outperforming the 19.8% rally of the industry it belongs to.
Extreme Networks, Inc. EXTR is a software-based networking solutions provider. It works with industries from healthcare to cloud computing.
Extreme Networks sports a Zacks Rank #2 and has a market cap of 1.4 billion. Based on the Zacks Consensus Estimate, we expect Extreme Networks to finish fiscal 2018 with EPS growth of 59.4% and sales growth of 65.7%.
Shares of Extreme Networks have gained 139% year to date, outperforming the 25% rally of the industry it belongs to.
STMicroelectronics N.V. STM is a French-Italian semiconductors company that develops circuits and discrete devices for use in microelectronic devices. The company specifically tailors its tiny, low-power technology for use in a wide range of Internet of Things products.
The company sports a Zacks Rank #1 and has a market cap of 19.1 billion. Based on the Zacks Consensus Estimate, we expect the firm to conclude its fiscal 2017 with EPS growth of 216.4% and sales growth of 18.4%.
Shares of STMicroelectronics have gained 90.5% year to date, outperforming the 41.7% rally of the industry it belongs to.
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