By 1948, the invention of the transistor drastically changed the computer's development. The transistor replaced the cumbersome vacuum tube in televisions, radios and computers. As a result, the size of electronic machinery has been shrinking ever since. The transistor was at work in the computer by 1956. Along with early advances in magnetic-core memory, transistors led to second generation computers that were smaller, faster, more reliable and more energy-efficient than their predecessors. The first large-scale machines to take advantage of this transistor technology were the early supercomputers, Stretch by IBM and LARC by Sperry-Rand. Both developed for atomic energy laboratories, these computers could handle an enormous amount of data, which was a capability much in demand by atomic scientists. The machines were costly and were often too powerful for the business sector's computing needs, thus limiting their attractiveness. Only two LARCs were ever installed; one in the Lawrence Radiation Labs in Livermore, California, which the computer was named after and the other at the U.S. Navy Research and Development Center in Washington, D.C. Second generation computers replaced machine language with assembly language, allowing abbreviated programming codes to replace long, difficult binary codes.

Throughout the early 1960's, there were a number of commercially successful second generation computers used in business, universities, and government from companies like Burroughs, Control Data, Honeywell, IBM, and Sperry-Rand. These second generation computers were also of solid state design, and contained transistors instead of vacuum tubes. They contained all the components we associate with the modern day computer - printers, tape storage, disk storage, memory, operating systems, and stored programs, as well. One important example was the IBM 1401. It was universally accepted throughout the industry, and is considered by many to be the Model T of the computer business. By 1965, most large business consistently processed financial information using second-generation computers.

It was the stored program and programming language that gave computers the flexibility to finally be cost effective and productive for business use. The stored program concept meant that instructions to run a computer for a specific function (known as a program) were held inside the computer's memory, and could quickly be replaced by a different set of instructions for a different function. A computer could print customer invoices and minutes later design products or calculate paychecks. More sophisticated high-level languages such as COBOL (Common Business-Oriented Language) and FORTRAN (Formula Translator) came into common use during this time, and has expanded to the current day. These languages replaced cryptic binary machine code with words, sentences, and mathematical formulas, making it much easier to program a computer. New types of careers (programmer, analyst, and computer systems expert) and the entire software industry began with second-generation computers.