Whereas railroads and Detroit automakers used to be the nuts and bolts of a well-rounded portfolio, today’s world runs on silicon chips and bits. There’s a reason Nvidia (nvda) has been one of the S&P 500’s best stocks two years in a row. The largest semiconductor maker by market capitalization is benefiting from virtually every tech trend-with its chips powering everything from Tesla’s self-driving cars, to Amazon’s and Microsoft’s cloud services, to the machines that mine the digital currency Bitcoin. Though Nvidia stock, at 47 times next year’s earnings, isn’t cheap, analysts expect revenue to soar 37% in the next fiscal year, justifying that price tag.
Ian Mortimer, comanager of the top-performing Guinness Atkinson Global Innovators Fund, is bullish on Nvidia. Further down the supply chain, he also likes Applied Materials (amat), which manufactures the equipment to make the chips, and trades at just 14 times 2018 earnings. In the past, such stocks have traded at a discount because they tended to have long down-cycles-slow periods between, say, the new iPhone or PlayStation launch. But the boom in A.I.-driven technology means semiconductors are far less cyclical, if not entirely recession-proof. “The demand is coming from other places that didn’t use to exist-smart homes, smart cars, etcetera,” Mortimer says.
While Nvidia’s chips are used in “the brain of the car,” Mortimer says, he also owns German chipmaker Infineon, whose sensors facilitate a host of more practical functions-from automatically opening and locking doors to detecting obstacles-that are nevertheless increasingly essential to electric and modern vehicles from Tesla, BMW, and many others. Infineon trades at 25 times earnings.
For income-conscious investors, tech also has more dividend-paying stocks than ever. In 2000, when Microsoft and Cisco (csco) were the two most valuable companies in the S&P 500, neither paid a dividend. Now, Cisco, which paid its first dividend in 2011, yields more than 3%; the S&P 500 average is around 2%. What’s more, after being nearly written off as a washed-up “cash cow,” Mortimer says, Cisco expects revenue to grow this quarter for the first time in two years. Pushing into cybersecurity and cloud services has put Cisco on the precipice of a comeback-reminiscent, in a way, of where Microsoft (whose dividend yields about 2%) was a few years ago, when its transition to cloud computing was just beginning to revive its growth. “There’s also some reassurance in the staying power of the older stalwarts, Mortimer adds: “It gives you a little bit more of that diversification, without having all your eggs in very high-growth companies that may or may not come through.”
Here are more of our picks for 2018:
A version of this article appears in the Dec. 15, 2017 issue of Fortune, as part of the article “Investor’s Guide 2018 – Stocks and Funds: The All-Tech Portfolio.“