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Cash in with these Tech Giants

By Daren Fonda
Kiplinger’s Personal Finance

Many investors dream of winning the lottery with a small company that hits the big time. But technology giants can pay handsomely too. Trends such as cloud computing and artificial intelligence “are reinforcing the power of the largest players,” says Kennard Allen, manager of the T. Rowe Price Science & Technology Fund. Big companies can exploit these trends, he says, and “enjoy their fruits” more than firms with fewer resources.

Leading the way is Amazon.com (AMZN, $845). Not only is it dominating online shopping, but it is also building other high-growth businesses. Amazon Web Services, its cloud-computing division, could generate $100 billion in annual sales by 2027, estimates Allen, up from $12.2 billion in 2016. Amazon is also betting on artificial intelligence: Its Alexa virtual assistant gets smarter every year, “learning” thousands more skills (well beyond shopping and home-control tasks). Topping things off are Amazon’s plans to field more package-handling robots in its warehouses and to scrap delivery trucks in favor of home-delivery drones. “I see Amazon as the biggest company in the world eventually,” says Allen, who expects the stock to double over the next five years.

Not far behind may be Alphabet (GOOGL, $847). The parent of Google is investing heavily in artificial intelligence that it hopes will manage data centers, electrical grids, homes and health care systems – and play a greater role behind the scenes of Google’s many online businesses. Alphabet has wrapped its tentacles around the wireless industry with its Android operating system (running nearly nine in 10 mobile devices worldwide), and it is developing sensors and software for self-driving cars. Wall Street adores all this -- along with Alphabet’s hefty profits – granting the company a market capitalization of $558 billion, second only to that of Apple. But Alphabet’s many products and growth prospects warrant a higher stock price, says Credit Suisse, which sees the shares hitting $1,100 over the next 12 months.

Finally, there’s Microsoft (MSFT, $65). The company generates immense sales and profits from its Windows operating systems and applications software, which run on more than 90 percent of the world’s personal computers. Microsoft is now plowing that cash into high-growth areas, such as its thriving cloud-computing business (Azure), a new machine-learning division, and products for the Internet of Things. All told, Microsoft should benefit from most of the major tech trends, says Bank of America Merrill Lynch.

Editor’s Note: Daren Fonda is an associate editor at Kiplinger’s Personal Finance magazine, www.Kiplinger.com.


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