We are less than a month away from the end of 2019, and that means we are less than a month away from the end of the 2010s decade.
Looking back on it, the 2010s has been a spectacular decade for stocks. The S&P 500 roared 180% higher during the decade, and did so with relatively muted volatility (there were only three drops in the S&P 500 of 15% or more during the decade, and only one drop of 20%, which happened in late 2018). In other words, we were basically in a bull market for the entire decade. That’s pretty rare.
Also of note, this was the decade where tech stocks became market leaders. Long story short, technology started taking over the world in the early 2010s, and has continued to expand its reach across the global economy into the late 2010s. As this has happened, tech stocks earned the lion’s share of revenue and profit growth during the decade, and consequently turned into the market’s best performing stocks.
The Invesco S&P 500 Equal Weight Technology ETF (NYSEARCA:RYT) rose 315% during the decade — a 135 point outperformance of the broader market.
Perhaps even more impressively, there were five S&P 500 tech stocks that roared higher by 1,000% or more during the decade. Will they keep rising into the 2020s?
Let’s answer that question, and more, by taking a deep look at the decade’s five hottest tech stocks.
Top Tech Stocks of the Decade: Netflix (NFLX)
Adjusted Closing Price Dec. 31, 2009: $7.87
Adjusted Closing Price Dec. 9, 2019: $302.50
Percent Return: 3,744%
The top tech stock in the S&P 500 in the 2010s was streaming giant Netflix (NASDAQ:NFLX). In a nutshell, Netflix pioneered the era of streaming television in the early 2010s. Over the next several years, consumers started to realize both the financial and convenience benefits of streaming TV. As they did, they all subscribed to Netflix, which had become the best platform in the streaming TV world without much competition.
Big subscription growth powered big revenue growth. Adding to that revenue growth, Netflix hiked prices throughout the decade without much churn. Those price hikes helped push profit margins higher. Big picture, then, Netflix leveraged secular streaming TV adoption tailwinds to power huge revenue and profit growth in the 2010s, the sum of which drove a near 4,000% gain in NFLX stock.
Will the strong gains continue? I think so, but at a more tepid rate. Competition concerns surrounding Netflix are overstated. Netflix’s unparalleled size and data gives it an enduring competitive advantage when it comes to producing original content. So long as it maintains that advantage, current subscriptions won’t quit, and new subscribers will keep joining. Revenues, margins and profits will march higher. So will NFLX stock.
Adjusted Closing Price Dec. 31, 2009: $15.34
Adjusted Closing Price Dec. 9, 2019: $314.38
Percent Return: 1,949%
The 2010s comprised a golden era for the semiconductor industry. That golden era ultimately turned one of the semiconductor industry’s biggest companies — Broadcom (NASDAQ:AVGO) — into one of the market’s best performing tech stocks of the decade.
Long story short, technology took over the world in 2010. The internet spread everywhere. Smartphones became the norm. Smart devices — like tablets, smartwatches and smart appliances — started to gain mainstream traction. Enterprises became increasingly technology-oriented. Shopping went digital. Entertainment consumption went digital. The video game industry boomed.
Because of all these trends, the semiconductor market soared throughout the 2010s. This created a rising tide which lifted pretty much every major semiconductor company. The biggest winner of them all? Broadcom. That’s because, through a series of acquisitions, Broadcom’s reach throughout the semiconductor industry expanded tremendously throughout the 2010s. Importantly, because the whole market was booming, all exposure was good exposure, so the more Broadcom expanded, the higher revenues, profits and the stock price went.
Will this “boom” repeat in the 2020s for AVGO stock? Yes. This whole “technology taking over the world” trend isn’t going to slow in the 2020s. It will only accelerate, with self-driving vehicles, automation, artificial intelligence and 5G. Meanwhile, global trade tensions should improve into the 2020s. Broadcom likely won’t extend its reach much further into this space, but even without the expansion tailwind, there is enough firepower here to keep AVGO stock on an upward path through the next decade.
Adjusted Closing Price Dec. 31, 2009: $134.52
Adjusted Closing Price Dec. 9, 2019: $1,749.51
Percent Return: 1,201%
The third top tech stock of the 2010s was e-commerce and cloud giant Amazon (NASDAQ:AMZN). Early in the decade, Amazon leveraged first-mover’s advantage in the secular growth e-commerce market to go from a relative nobody in the retail world, to one of the world’s largest retailers. Then, in the second part of the decade, Amazon focused on building out a huge cloud infrastructure business that has become the backbone of the global enterprise cloud. At the same time, Amazon started populating its ecosystem with ads, and has also turned into a huge digital advertising company.
In other words, during the 2010s, Amazon became a leader in three very big, very quickly growing markets: e-commerce, cloud and digital ads. In so doing, the company sustained huge revenue growth throughout the decade. Importantly, the cloud and digital ad businesses operate at much higher margins than the e-commerce business. So, as cloud and digital ad revenues grew in the back-half of the 2010s, Amazon’s profit margins meaningfully expanded, and that in turn powered huge profit growth. As those profits surged higher, so did AMZN stock.
Can all this continue in the 2020s? Sure. But, I’d be careful. Amazon is losing its competitive advantages in the e-commerce and cloud worlds. That is, traditional retailers like Walmart (NYSE:WMT) and Target (NYSE:TGT) have caught up to Amazon in e-commerce, while Microsoft (NASDAQ:MSFT) appears to be rapidly chipping away at Amazon’s lead in cloud infrastructure. So long as these competitive headwinds remain, Amazon stock may struggle for gains.
Take-Two Interactive (TTWO)
Adjusted Closing Price Dec. 31, 2009: $10.05
Adjusted Closing Price Dec. 9, 2019: $120.06
Percent Return: 1,095%
Flying under the radar throughout the decade has been video game publisher Take-Two Interactive (NASDAQ:TTWO). The video game industry grew by leaps and bounds in the 2010s thanks to a few things. First, you had player growth as the market gained international traction. Second, you had engagement growth, as consumers spent more and more of their free time playing video games. Third, you had revenue growth, as video game publishers started to incorporate various in-game transactions. Fourth, you had addressable market expansion, as eSports became a thing and started to grow into its own.
Take-Two was at the forefront of all that growth. It owns arguably the video game world’s best content portfolio, which comprises some of the most-played video games in the world. At the same time, it has figured out how to seamlessly and efficiently incorporate microtransactions into those widely played video games. And, it has capitalized on the eSports trend by incorporating live competition modes into many of its titles.
Consequently, Take-Two’s revenues, profits and stock price all soared during the 2010s. The 2020s should be more of the same. Consumer video game engagement is only going up, thanks to global digitization trends. Meanwhile, eSports appears to be only scratching the surface of its long-term potential. Take-Two is at the epicenter of both of those growth markets. At the same time, Take-Two should get a big boost in the early 2020s from the advent of cloud gaming and the release of new-generation PlayStation and Xbox video game consoles.
The company should sustain big growth over the next decade, and TTWO stock should rally alongside that big growth.
Adjusted Closing Price Dec. 31, 2009: $17.20
Adjusted Closing Price Dec. 9, 2019: $212.17
Percent Return: 1,133%
During the 2010s, graphics processing unit maker Nvidia (NASDAQ:NVDA) went from being relative unknown in the tech space to the face of the world’s next generation of technology products. That is, Nvidia is the maker of the chips which power various next-gen technologies, including self-driving cars, artificial intelligence, automation, connected devices and data centers. These chips had relatively small demand at the start of the decade. Exiting this decade, however, demand is huge and still growing at a rapid rate.
This transition from relatively muted growth to big growth has driven huge gains in Nvidia’s financials. Revenues have skyrocketed. Gross margins have improved with booming demand. Expense rates have dropped meaningfully with scale. Profits have roared higher on the back of big revenue growth and margin improvements. As those profits have roared higher, so has NVDA stock.
The good news is that all of this will continue in the 2020s. Demand for Nvidia’s GPUs isn’t going to drop anytime soon. If anything, it’ll pick up, as the world becomes more tech-centric and companies pour more money into automation, data and AI investments. Nvidia also has very little competition in this GPU space, so the likelihood that a competitor knocks it off course is very low. Revenues will therefore continue to grow at a steady pace. Profit margins will continue to improve with scale. Profits and NVDA stock will keep rising.
As of this writing, Luke Lango was long NFLX, WMT and MSFT.