Best Tech Stocks in Silicon Valley
Silicon Valley is the heart of the technology sector.
Silicon Valley is the heart of the technology sector. Naturally, you’d assume that shares of the publicly traded tech companies based in such storied California cities as Cupertino, Mountain View and Menlo Park must be producing scorching returns in the current bull market. We set out to determine if that’s an accurate assumption for the biggest and best-known Silicon Valley stocks.
Since “Nasdaq” is synonymous with “tech stocks,” we focused on the Nasdaq-100 Index, home to the largest non-financial stocks listed on the Nasdaq Stock Market by market capitalization. From the onset of the bull market on March 9, 2009, the Nasdaq-100 has delivered a total return, including dividends, of 520%. By comparison, the broader Standard & Poor’s 500-stock index has returned 348%.
There are 17 tech companies headquartered in Silicon Valley, a cluster of cities at the southern end of San Francisco Bay, whose stocks are components of the Nasdaq-100. Surprisingly, an investor would have been better served buying an exchange-traded fund that tracks the entire Nasdaq-100 index such as the PowerShares QQQ Trust ETF (QQQ), rather than some of the individual tech stocks on this list. Take a look at the winners and losers among the most lauded names in Silicon Valley.
Return data provided by S&P Global Market Intelligence. Prices and returns as of Oct. 4, 2017. Due to the multiple share classes issued by some companies, the Nasdaq-100 Index currently consists of 107 stocks. Market capitalization represents share price multiplied by the number of shares outstanding. Stocks are listed in order of total percent returns during the current bull market, from lowest returns to highest.
PayPal Holdings
- Ticker symbol: PYPL
- Share price: $65.08
- Bull market return: 58%*
- Dividend yield: none
- Headquarters: San Jose, Calif.
PayPal Holdings’ spot on this list is deceptive. It originally went public in 2002, but it was gobbled up by eBay (EBAY) later that year. PayPal has only been a separate publicly traded company in its current incarnation for about two years, and during that time it has delivered market-beating returns. The payments processor, which doesn't pay a dividend, has seen its stock rise 58% since being spun off from eBay in 2015. The Nasdaq-100 is up 30% over the same time period, including dividends. The spinoff was intended to free the fast-growing payments-processing business from the slow-growth online auction and shopping site. So far, the strategy is paying off for PayPal investors.
*PayPal officially began trading on the Nasdaq Stock Market on July 20, 2015.
Cisco Systems
- Ticker symbol: CSCO
- Share price: $33.44
- Bull market return: 197%
- Dividend yield: 3.6%
- Headquarters: San Jose, Calif.
Cisco Systems, which makes the routers, switches and modems that form the backbone of the Internet, has been something of a disappointment since the bull market began. True, Cisco investors have nearly tripled their money since March 2009, including dividends, but the Nasdaq-100 index has risen more than six-fold over the same span. The company, founded in 1984 in San Francisco, is reconfiguring itself to take advantage of the growth of cloud-based computing (storing data and applications on remote servers) and the Internet of Things (the expanding digital interconnectivity of everyday items, from cars to refrigerators). The strategic move, if successful, could turn into a long-term tailwind for the stock. Meantime, the healthy dividend yield should placate income investors.
Symantec
- Ticker symbol: SYMC
- Share price: $33.25
- Bull market return: 261%
- Dividend yield: 0.9%
- Headquarters: Mountain View, Calif.
Symantec went public way back in 1989, but its shares haven’t been able to keep pace with the performance of the Nasdaq-100 in recent years. The long, slow decline in sales of PCs has forced the company to reduce its reliance on selling traditional security software to consumers, which has resulted in a sometimes bumpy ride for the stock. But management isn’t sitting on its hands. Earlier this year, Symantec paid $2.3 billion to acquire LifeLock. The deal gives Symantec access to the more than 4.5 million members of the identity-theft-protection company. Morgan Stanley is equally optimistic about demand for enterprise-level security. Its analysts value the market for selling cybersecurity software and systems to businesses at $35 billion a year and climbing at an annual clip of 9%. Combined, the opportunities on the consumer and business sides offer shareholders reasons for optimism in the years ahead.
Intel
- Ticker symbol: INTC
- Share price: $39.34
- Bull market return: 313%
- Dividend yield: 2.9%
- Headquarters: Santa Clara, Calif.
Intel is the old-timer of Silicon Valley. The company was founded in 1968 and held its initial public offering in 1971. But Intel’s longevity is a big reason it’s one of the greatest tech stocks of all time. Through the end of 2016, the stock has generated a staggering $259 billion in lifetime wealth for its shareholders, according to stock research conducted by Hendrik Bessembinder, a finance professor at Arizona State University. Returns have been leaner during the current bull market as declining demand for PCs has hurt demand for Intel’s semiconductors. That has forced Intel, the world's largest maker of the central processing units that serve as a PC's brain, to find new ways to generate revenue growth. The expansion of cloud-based services has been a boon, thanks to its dominance of the market for server chips. Analysts at Credit Suisse think Intel is well-positioned for the long term because of its scale and investments in research and development.
- Ticker symbol: FB
- Share price: $168.42
- Bull market return: 341%*
- Dividend yield: none
- Headquarters: Menlo Park, Calif.
Facebook got off to a rocky start when it went public in 2012 at $38 a share. Technical glitches marred the initial public offering, and the stock traded below the IPO price for more than a year. Since then, however, it's been nothing but blue skies. Facebook’s share price has more than quadrupled in its five-plus years as a publicly traded company. The Nasdaq-100 is up 159% after dividends over the same time frame. The relentless growth of digital advertising bodes well for further gains. As the most popular social media network in the world, advertisers are happy to pay Facebook to reach all those eyeballs.
*Facebook went public on May 18, 2012
Xilinx
- Ticker symbol: XLNX
- Share price: $71.13
- Bull market return: 409%
- Dividend yield: 2.0%
- Headquarters: San Jose, Calif.
Founded in 1984, Xilinx is another longtime denizen of Silicon Valley in the chip business that hasn't pulled its weight through the current bull market. Shares trail the Nasdaq-100 Index by 111 percentage points even after accounting for dividends. A change in the landscape promises better times ahead for the maker of programmable chip technology. Although Xilinx faces tough competition from Intel, investors are excited about the payoff from selling chips to Amazon.com’s (AMZN) thriving cloud-computing business, Amazon Web Services. And the boom in data centers beyond Amazon offers additional avenues of growth.
Maxim Integrated Products
- Ticker symbol: MXIM
- Share price: $48.42
- Bull market return: 489%
- Dividend yield: 3.1%
- Headquarters: San Jose, Calif.
It's been steady as she goes for Maxim Integrated Products' stock for much of the bull market, thanks in part to the inexorable rise of digital mobile devices. Among other areas of operation, the company, founded in 1983, supplies chips to smartphone giants Apple and Samsung. That leaves it exposed to risk if either of those partners were to have a change of plans. But Stifel analysts say the company's ongoing diversification efforts give it multiple opportunities for growth without becoming too dependent on a single customer. So while it’s hard to imagine consumers abandoning their iPhone and Galaxy smartphones in droves, Maxim should be safe if they do since it depends on neither Apple nor Samsung for more than 10% of its overall business.
Alphabet
- Ticker symbol: GOOGL
- Share price: $966.78
- Bull market return: 563%
- Dividend yield: none
- Headquarters: Mountain View, Calif.
Alphabet, the corporate parent of search giant Google, has been putting up market-beating returns over the past eight-plus years, and analysts think it can continue to do so for the foreseeable future. Alphabet’s Google and Facebook essentially form a duopoly in digital advertising. If you're bullish on one, you've got to be bullish on the other. Google claims the lion's share of global ad revenue, taking in $79 billion in 2016, according to media agency Zenith. That’s about three times as much as Facebook, which generated $27 billion in ad revenue. Analysts surveyed by Thomson Reuters forecast average earnings gains of 19% a year over the next five years for Alphabet. That’s impressive ongoing growth for a company that was conceived in a Stanford dorm room in 1995 and officially founded in 1998 with $100,000 in Silicon Valley seed money. Then known as Google, the company held its initial public offering in 2004.
Intuit
- Ticker symbol: INTU
- Share price: $146.67
- Bull market return: 563%
- Dividend yield: 1.1%
- Headquarters: Mountain View, Calif.
Apart from a stumble two years ago on growth fears, Intuit's stock has been an above-average performer through much of the bull market. The most recent quarterly results encapsulate why. The company continues to build its base of business subscribers who use QuickBooks, Intuit’s accounting software. Online subscriptions to its tax-preparation services continue to increase as well. Over the past five years, Inuit logged an average annual profit decline of 0.6%, according to data from Thomson Reuters. Those days of sluggish growth appear to be over, however. Analysts expect the company to deliver average annual earnings gains of 15% a year over the next five years. Intuit has been around since 1983 and went public in 1993.
Applied Materials
- Ticker symbol: AMAT
- Share price: $51.60
- Bull market return: 621%
- Dividend yield: 0.8%
- Headquarters: Santa Clara, Calif.
Wall Street is increasingly bullish on Applied Materials. Of the 15 analysts covering the stock tracked by Zacks, 10 call it a "Strong Buy," two have it a "Buy," and three have it "Hold." There are no “Sell” ratings. It's easy to see where the optimism comes from. Applied Materials' core business of semiconductor equipment and services benefits from today's trends. The rise of artificial intelligence, cloud computing, the Internet of Things, mobile devices and Big Data are driving increased demand for chips. As a supplier to the companies that make the chips powering all these technologies, Applied Materials finds itself in an enviable position. The company also supplies products for making displays for TVs, tablets, computers and smartphones. And don’t be fooled into thinking of Applied Materials as a relative newcomer to Silicon Valley. It was founded in Mountain View, Calif., in 1967 – a year before Intel.
Electronic Arts
- Ticker symbol: EA
- Share price: $118.50
- Bull market return: 655%
- Dividend yield: none
- Headquarters: Redwood City, Calif.
It’s been all fun and games for Electronic Arts so far during the bull market, and the increasing popularity of video games should help the company and its shareholders continue to thrive in the years ahead. The U.S market for video games is expected to rise 4% a year through 2020, according to market researcher PwC, to reach $20.3 billion. Electronic Arts had net revenues of $4.4 billion in 2016. Its EA Sports titles are some of the most popular among gamers, including Madden NFL 17, NBA Live 16 and NHL 17. But the company's biggest sports success has been in soccer. FIFA 17 was the best-selling console game worldwide last year. Analysts think Electronic Arts, founded in 1982, can deliver average annual earnings growth of 15% for the next five years.
Adobe Systems
- Ticker symbol: ADBE
- Share price: $148.50
- Bull market return: 785%
- Dividend yield: none
- Headquarters: San Jose, Calif.
An investment in Adobe Systems has delivered a return more than double that of the S&P 500 during the bull market. The giant design software company followed the rest of the industry to the cloud, and it's been paying off. Rather than license physical copies of its proprietary software such as Photoshop, Adobe now sells online subscriptions. Analysts expect earnings per share to rise 40% this year. Adobe, the brains behind Flash for the web and the ubiquitous PDF, is celebrating its 25th anniversary in 2017. In a bid to put itself in position to benefit from the next big thing over the next 25 years, Adobe is making investments in artificial intelligence and virtual reality.
eBay
- Ticker symbol: EBAY
- Share price: $38.29
- Bull market return: 848%
- Dividend yield: none
- Headquarters: San Jose, Calif.
EBay was founded in 1995 as AuctionWeb. The first item purchased on the revolutionary online marketplace was a broken laser pointer. The name changed to eBay in 1997. The company has evolved over the years, notably buying and later spinning off payments processor PayPal, but at its core eBay has always remained an auction site. The good news is that the closure of so many traditional retail stores is beneficial to eBay, say analysts at Stifel. The bad news is that eBay remains in a "difficult competitive position online facing Amazon." Analysts say more spending on marketing and contributions from its StubHub ticket reselling business should combine to help earnings growth pick up again following a profit decline in 2016. Time will tell. But there’s no denying the tremendous performance of eBay’s stock during the bull market.
Lam Research
- Ticker symbol: LRCX
- Share price: $176.73
- Bull market return: 866%
- Dividend yield: 1.0%
- Headquarters: Fremont, Calif.
Shares of Lam Research have seen some ups and down along the way, but the bottom line is that this supplier of equipment to chip makers delivered outsized total stock returns since the bull market began. Analysts at Zacks Equity Research note that the company continued its impressive earnings momentum with another better-than-expected profit beat in its most recent quarter. Furthermore, analysts are raising their profit estimates. Of the 13 analysts covering the stock polled by Zacks, nine have Lam at "Strong Buy," two call it a "Buy" and two rate it at "Hold." Lam got its start in Santa Clara in 1980, making it one of the early players in the lucrative Silicon Valley semiconductor industry.
KLA-Tencor
- Ticker symbol: KLAC
- Share price: $100.59
- Bull market return: 922%
- Dividend yield: 2.3%
- Headquarters: Milpitas, Calif.
The KLA-Tencor we know today came into being in 1997 from the merger of KLA Instruments and Tencor Instruments. But its experience in the semiconductor industry stretches back to the 1970s, when its predecessor companies got their respective starts. Experience has paid off. KLA-Tencor shares have delivered impressive price appreciation over the last eight-plus years of the bull market, but what really sets this Silicon Valley stock apart is an unusually generous dividend. The technology sector as a whole pays an average divided of just 1.4%, according to Dividend.com. Suppliers of equipment to the semiconductor industry, which is what KLA-Tencor does, are even more stingy. The company's competition coughs up an average dividend yield of less than 1%. In August, KLA-Tencor hiked its quarterly dividend to 59 cents a share from 54 cents, a 9.3% increase.
Apple
- Ticker symbol: AAPL
- Share price: $151.89
- Bull market return: 1,322%
- Dividend yield: 1.6%
- Headquarters: Cupertino, Calif.
The key to Apple's bull-market success can be summed up with one word: iPhone. The original debuted 10 years ago just as the stock market was showing some cracks from the emerging financial crisis. A steady series of new iPhones have helped Apple generate stunning returns ever since. It remains to be seen if the recently released iPhone 8 and the soon-to-be-released iPhone X can continue the tradition. The company hasn't exactly been a dividend slouch either, especially for a tech stock. It boosted its bull-market returns by instituting a dividend in 2012 and has raised its payout every year since. Investors who are down on Apple don't see how the company can ever come up with another gadget as popular as iPhone, but for the most part, analysts remain bullish. Out of 30 analysts reporting to Zacks, 18 call it a "Strong Buy," five have it at "Buy," five give it a "Hold" recommendation, and just two say it's a "Strong Sell." A public company since 1980, Apple’s stock has created more lifetime wealth for its shareholders ($746 billion) than any other tech stock in history, according to Bessembinder’s research.
Nvidia
- Ticker symbol: NVDA
- Share price: $179
- Bull market return: 2,224%
- Dividend yield: 0.3%
- Headquarters: Santa Clara, Calif.
Much like the Backstreet Boys and NSYNC, Nvidia was a unique product of the 1990s. Founded in 1993 and public since 1999, the company blossomed as computers and gaming consoles became more popular and more complex. In its early days Nvidia was primarily known in the gaming community for making high-end video graphics cards. It turns out that graphical processing units have a wide range of applications in today's data-rich world. From the automotive industry to mining for Bitcoins, Nvidia has customers across the business and consumer landscapes. That's helping to drive outsized growth. Analysts expect the company's sales to increase 30% this year, according to Thomson Reuters, while earnings per share should gain 40%. Bull market or not, it's reasonable to question whether shares in Nvidia can keep up such a torrid pace. After all, they've returned more than 2,000% in the past eight and a half years. But for now, at least, Nvidia is holding up its end of the bargain thanks to the impressive top- and bottom-line growth.
