Top Technology Stocks of 2016 So Far
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The Nasdaq 100, which consists of about 100 companies (many of them in the tech industry), has only ticked up about 5% in 2016. But that doesn't mean there haven't been some huge movers in tech space.
NVIDIA (NASDAQ: NVDA), Applied Materials (NASDAQ: AMAT), and Linear Technology (NASDAQ: LLTC) are the top-performing tech stocks in the index so far this year, and all have delivered gains exponentially higher than the index's.
We still have a few months before the year is over, but let's take a look at why these top tech stocks are performing so well right now:
NVIDIA -- up 90%
NVIDIA makes graphics processing units (GPUs) and graphics cards for PCs, and it dominates the space. The company has just over 70% of the discrete GPU market right now, while its biggest rival, Advanced Micro Devices, holds the remaining 30%.
Its stock price, on fire since the beginning of the year, has spiked over 90% year to date. Investors have been pleased with the company's strong revenue growth and its expansion into new and promising markets.
NVIDIA earned record revenue of $1.43 billion in its fiscal Q2 2017, an increase of 24% year over year. About 55% of that revenue came from the gaming segment, but it's growing other revenue segments as well.
NVIDIA is quickly becoming a major player in the driverless car space, where its GPUs are being used as the main processors. GPUs are uniquely suited for autonomous cars because the vehicles need to process vast amounts of visual information (and make sense of it) in order to drive themselves.
The company earned just $119 million from its automotive segment, though that was an increase of 67% year over year. Those automotive pursuits will eventually pay off with more revenue, but in the meantime, investors are reaping the benefits of NVIDIA's gaming dominance and its recent release four new graphics cards in the past few months should keep the gaming revenue pouring in.
Applied Materials -- up 47%
Applied Materials makes manufacturing equipment for companies that make semiconductors, and right now business is booming.
The company's orders skyrocketed 37% year over year in the second quarter (the highest number of orders in 15 years) and investors have pushed its stock price up right along with them. Applied Materials's is up 47% year to date.
Investors should know a couple of things about Applied Materials' meteoric rise this year, however. The first is that the company's revenues aren't all that stellar. Despite the huge increase in orders, second-quarter revenue was flat year over year, though it did beat Wall Street's estimates.
Similarly, in the first quarter of this year, Applied Materials only improved sales by 4%, but they again beat Wall Street predictions. Its sales continue to beat analyst estimates, though they aren't all that impressive on a year-over-year basis.
The second thing investors should know is that Applied Materials works in a very cyclical space, where huge orders are later offset by slower periods. This creates a boom-and-bust cycle for the company and a relatively unstable investment for long-term investors.
The company's lack of consistent revenue gains and its volatile sales orders mean that Applied Materials isn't one stock I'd be eager to add to my portfolio, despite its recent gains.
Linear Technology -- up 38%
Linear Technology designs, manufactures, and markets analog integrated circuits. The company's stock price had been completely flat over the past two years, but all of that changed recently.
The first bit of good news came from the company's three quarters of sequential revenue growth after a significant decline in the first fiscal quarter.
But the key factor to Linear Technology's big stock run-up this year came after it announced that it was being purchased by Analog Devices for $14.8 billion. The news that the combined companies would be worth about $30 billion and bring in $5 billion in annual revenue put dollar signs in investors' eyes.
The deal won't close until the first half of 2017, pending regulatory approval, of course. It's also worth mentioning that many huge merger and acquisitions don't always pan out the way companies expect them to.
The list of big technology winners may change between now and the end of the year, but if there's one tech stock from this list that I'd bet on for the long term, it would be NVIDIA. The company has clear advantage in the discrete GPU market right now and is diversifying its revenue in new markets. Because of that, investors will likely see much more growth from NVIDIA through the rest of the year and beyond.
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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool recommends Linear Technology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.