(FORTUNE Magazine) – It should come as no surprise that seven of our ten boomtowns are located in the West. After all, this part of the country has always attracted pioneers--in this case, entrepreneurs such as computer czar Michael Dell and entertainment impresario Steve Wynn. While traditional wealth creation thrived on the industrial infrastructure of the Northeast, today all you need is a great idea and some money to fund it. Many of our top cities have become meccas for both hot startup companies and significant venture capital dollars.

Though No. 5 San Jose (which serves as a proxy for the greater Silicon Valley region) is the country's hub of technology, other cities on our list prove that innovation is not confined to the Bay Area. Up-and-comers like Austin, No. 1, and Las Vegas, No. 2, are expanding at remarkable rates, adding unprecedented numbers of people, startups, new homes, and jobs. If this year's list is any indicator of what's to come, the capital of the 21st-century knowledge economy will no doubt be located far from the chilly Northeast. --Anne Faircloth

AUSTIN

NO.1 "It's not Texas, it's Austin" is the reassuring mantra newcomers to this city hear repeatedly. For years this green oasis of lakes and hills has served as a geographic and cultural counterpoint to the flatlands, oil money, and cowboy ways of cities like Dallas and Houston. Austin has always been the sort of town where the '60s never really died, where creativity was encouraged and free spirits were nurtured. "If you grew up anywhere in Texas and were kind of different, Austin would be the place you'd gravitate to," says Richard Linklater, an independent filmmaker who did just that, coming to Austin to make such movies as Slacker and more recently The Newton Boys.

Economically, however, for a long time about all Austin had going for it was the University of Texas and state government, since it's the capital. "People used to say, 'I'd love to live here, but how can I make a living?'" explains Bill Miller, a founder of Hillco Partners, a public affairs company. That is not a concern on anyone's mind today--the city's economy has taken off like its most famous homegrown success story, Dell Computer, whose stock has increased a Texas-sized 82-fold since 1994. Fully 65% of the company's workers are still based in Austin, where Michael Dell first got the idea for his direct-sales model in a dorm room at the University of Texas. It's now the region's largest private employer, adding a staggering 100 to 200 jobs each week. Certainly Michael Dell and his posse of Dellionaires have irreversibly altered the Austin scene from sleepy college town to booming technology hub. But although this company is the most prominent wealth creator in town, it is by no means the only one.

"The role of government is not to create wealth but to create an environment where people are willing to risk capital," declares George W. Bush, the immensely popular governor of Texas, who has become, along with Dell, one of Austin's most prominent ambassadors. If Bush wants to make entrepreneurs feel at home here, he has certainly succeeded. The number of software firms alone has ballooned from 177 in 1989 to over 600 by the end of last year. Of the 57 publicly held companies in Austin, 32 have staged their IPOs since 1994. As these companies grow and hire more and more innovative young minds from Silicon Valley, Boston's Route 128 corridor, and elsewhere, they feed an already intensely fertile environment for startups.

The engineers first started coming in the '70s to work for the global technology companies that opened branch manufacturing facilities in Austin as an alternative to an increasingly expensive California. This wave was dominated by semiconductor makers like Motorola and AMD. It was only a matter of time before some entrepreneurs would emerge from such a talent pool.

"You can feel the growth here," says Chris Porch, co-founder of Trilogy, one of Austin's leading software firms. He and some buddies from Stanford moved their young company from Palo Alto to Austin in 1991, lured by the "dramatically higher standard of living," he says. "I couldn't afford a house in Palo Alto. We cut our rent by two-thirds when we came here." Like most of the tech companies in town, Trilogy is growing rapidly, from fewer than 15 employees to 800 today. "We're doubling every year," says Porch, "and our No. 1 job is recruiting."

Indeed, at times the mood around Austin's startups feels like one big rush party as they vie to add employees and office space to their ever-shifting warrens of cubicles. "This is a fiercely competitive town for talent," says Guy Hoffman, who was lured here last year from Dallas to be CEO of Deja News, an Internet company. But he's quick to point out that Austin has remained a congenial place: "I can call up any number of executives for help." This crowd socializes together quite a bit too, whether it's bumping into one another on the always crowded "nerd birds"--the three daily nonstop flights from Austin to San Jose--or knocking back the hot microbrew Shiner Bock at the high-tech happy hours sponsored by local companies.

For the entrepreneurs, having a presence like Michael Dell in town is simply the icing on the cake. "Dell is like the anchor store in a mall," says Cliff Sharples, CEO of Internet retailer Garden Escape. "It's driving so much of the economy and providing a sense of excitement and growth."

The same palpable energy has infused the city's culture too--Austin's '60s-style emphasis on music and alternative film has been a big draw for the young techies. The outside world has caught on, and the city is incessantly plugged as a more laid-back alternative to Hollywood, thanks to Linklater but also to the presence of residents like Matthew McConaughey and Sandra Bullock, whose recent movie, Hope Floats, was shot outside the city.

Other than Dell, none of the city's homegrown companies have become a household name, but it's only a matter of time. When that happens, Austin's reputation as a breeding ground for high-tech entrepreneurs will be assured. And as long as you can listen to great live music and chow down on cheap enchiladas, the old-timers won't complain too much. --A.F.

LAS VEGAS

NO.2 Chanel. Hermes. Spago. Ah, life is large here in Vegas. While it will always be the home of the $1.99 buffet, Sin City has grown up. Now high rollers can buy $8,230 alligator bags from Fendi and feast on broiled Gulf escolar at Emeril Lagasse's tony New Orleans Fish House. Then there is the $300 million worth of masterpieces by Monet, Kline, et al. at the Bellagio, Steve Wynn's $1.6 billion, 3,005-room extravaganza that opened in October. Coming this spring: the Venetian, where guests will take gondola rides on its indoor canal and get hydrotherapy treatments at a branch of the world-renowned Canyon Ranch spa.

This injection of snob appeal is part of Vegas' efforts to wean itself from gambling. Now that most of the U.S. population lives within a three-hour drive of a blackjack table, the city's casinos are reinventing themselves to lure the nongambling upscale vacationers who have eschewed Vegas in the past. It's working: Only about 50% of the newer hotel-casinos' revenues come from gambling, a big change from the days when rooms and restaurants generated mere pocket change. And thrill seekers pumped almost $25 billion into the city's economy last year.

Yet there's a lot more to Vegas than vacations. As the host of Comdex--the annual technology blowout--it's easily the nation's top convention destination. Not content with its unmatched 109,608 hotel rooms and 4.8 million square feet of meeting space, Vegas will add another 20,000 rooms and expand its convention facilities nearly 30% by 2000.

Low costs and nonexistent state taxes have also lured FORTUNE 500 companies like Lockheed Martin and Merck to set up manufacturing and back-office operations here. On a percentage basis, Vegas has ranked among the top ten U.S. cities in job creation and population growth since 1990. "In this town, working the graveyard shift is as normal as a 9-to-5 day, so it's ideal for a 24-hour operation," says Wilfried Jackson, who runs Citibank's 1,900-employee Vegas credit card-processing facility.

A recent $315 million expansion of the slot-machine-filled McCarran International Airport has increased Vegas' daily nonstops to cities like Phoenix (35), the Bay Area (37), and L.A. (57). Those L.A. flights take only an hour, which will help Vegas capitalize on its proximity to Hollywood: Right now, Black Mountain Studios is breaking ground on a $200 million production facility in town. "We'll never be L.A., but if we can grab even a fraction of its film business, we'll take it," says studio owner Doris Keating. Sure, it sounds farfetched. But did you ever think that Vegas would have shopping and dining that rival New York and Paris? --Ed Brown

SALT LAKE CITY

NO.3 The days when bartenders served Scotch out of those airplane minibottles are long gone, but Utah's liquor laws are still pretty strange. Order a martini after work, and the bartender will explain that you'll have to buy a "private club membership" first. And that's just one of the byzantine rules that make it a pain to get a drink out here.

Yet these days there are far more cosmopolitan sides to Salt Lake City. In its Warehouse District, you'll find artsy eateries like Metropolitan, which features a Buddhist fire-and-water sculpture and a clientele to match. What's more, the city's strong Mormon influence--about 50% of the residents are Latter-Day Saints members--has its advantages: Since so many people here have lived abroad on missionary programs, you're as likely to find someone who's fluent in Farsi or Urdu in Salt Lake as you would be in Manhattan. They've even got the Salt Lake Observer, a gossipy biweekly a la the New York Observer. Recent headline: 'YEEAA! IT'S WORKING!' VIAGRA IS HUGE IN UTAH.

The city's high-tech business community is pretty progressive as well. Salt Lake's University of Utah has produced several Silicon Valley stalwarts, including Netscape chairman Jim Clark (see cover story). Meanwhile, the 'U' of U's Research Park has spawned dozens of homegrown companies such as Evans & Sutherland, a $159 million computer-graphics company that did the special effects for Star Trek: The Next Generation. It's also home to biotech outfits like TheraTech, whose transdermal testosterone patches made Newsweek's cover.

Software companies used to dominate the city's tech scene, but now hardware manufacturers are gaining a foothold here as well. In September, Gateway opened a new PC factory that will employ 1,300 people by the end of next year. And Intel is seriously considering Salt Lake as the site for a new 7,000-employee research facility.

This former mining town is also home to some nontech giants. There's FranklinCovey, which offers individuals and companies a blend of management consulting and quasi-psychotherapy through its self-help books--including the best-selling The Seven Habits of Highly Effective People by Stephen Covey--and seminars. Then there's Huntsman Corp. (expected 1998 revenues: $5 billion), which makes the chemicals found in everything from carpets to TV sets.

Of course, this isn't nirvana. Salt Lake's nightlife is even duller than you'd expect it to be. The sidewalks roll up exactly at 5 P.M., and even if you venture out to one of the city's bars or microbreweries, chances are you'll have the place to yourself. Yet during the day, residents are griping about the traffic jams caused by a $1.5 billion highway expansion and the construction of a $313 million light-rail system.

All the construction is going to an economy-boosting cause: Salt Lake will host the 2002 Winter Olympics. And while the city's infrastructure might need some improving before the Games, its surroundings sure don't: Framed by mountains on all sides, Salt Lake has a spectacular natural setting and is about an hour away from nine of the world's best ski resorts, including Sundance, Deer Valley, and Snowbird. Now if only they could do something about those drinking laws.... --E.B.

PHOENIX

NO.4 When Jerry Colangelo came to Phoenix in 1968 to launch a pro basketball team, everybody back home in Chicago thought he was crazy. The city's population was under a million, and there were almost no big corporations. The economy was driven largely by tourism, drawing snowbirds from the East and Midwest who came in search of abundant sunshine and golf. Not exactly a breeding ground for rabid NBA fans.

But Colangelo and Phoenix proved the naysayers wrong. The city has added a whopping 65,000 people every year since then, bringing the current population to 2.8 million. This surge has in turn fueled a booming economy where high tech is now the largest economic growth sector. Although new residents are arriving daily, job creation has kept pace. Employment has grown by 174% over the past 20 years, compared with 50% nationally. Indeed, Phoenix has been the fastest-growing large labor market in the nation for the past four years. Meanwhile, Colangelo's sports empire has expanded to include not only the Suns but also the Arizona Diamondbacks baseball team, whose new state-of-the-art retractable-roof stadium dominates downtown.

Now the city has not only the population but also the business base to support four major professional sports teams, although it hasn't developed in quite the way Colangelo had initially envisioned. "There was a time," he says, "when I thought we needed a much larger corporate base, with FORTUNE 500 companies. Instead, it took on a different look with smaller high-tech companies."

Chandler, a town just southeast of Phoenix, has become a mecca for technology, particularly semiconductor production. In 1996, Intel opened the world's largest chipmaking plant here, and Motorola and SGS Thomson have facilities as well.

One of the most visible signs of prosperity has been the growth of chic communities in North Scottsdale, in what was once pristine desert scattered with saguaro cactus. Development reportedly occurs at the unbelievable rate of an acre an hour, and locals are beginning to chafe at the endless construction. "It's almost scary when you think about how big we're getting," says Don Henninger, editor of the Phoenix Business Journal. "Some people are afraid we'll become another Los Angeles, but it's fueling a fabulous business environment."

One counterbalance to the sprawl has been the remarkable rebound of downtown Phoenix, which has become a chic after-dark destination as well as a residential hot spot. To be sure, it's a long way from rivaling the level of liveliness in Colangelo's hometown of Chicago, but it's taking big steps in the right direction. --A.F.

SAN JOSE

NO.5 Wealth is not the first word that springs to mind as you drive along El Camino Real, a 60-mile-long strip that serves as the main artery of Silicon Valley. The endless stream of 1970s vintage strip malls, cheesy motels, and cheap taco joints looks as if it hasn't seen a boom in decades. You would never guess that nestled all around are the headquarters--campuses, really--of the big-deal technology companies that have become synonymous with wealth creation in the '90s. Silicon Valley's wealth is decidedly of the subtle kind, because life here moves much too quickly for conspicuous consumption.

Perhaps the region's greatest achievement is that it has held its own against a wave of Silicon Deserts, Silicon Beaches, Silicon Alleys, and other wannabes that threaten to usurp its position as ground zero for techno-innovations. It is constantly reconfiguring itself--from its early boom in defense and semiconductors, to PCs, biotech, and now the Internet and software. Over 3,500 new businesses were registered here in 1997 alone; since 1992, the area has added more than 200,000 jobs. Says Joe Kraus, co-founder of the Internet search engine Excite, which has grown from six to 650 employees since 1994: "We wouldn't have started Excite if we had been anywhere else. The combination of role models and a strong funding infrastructure made it possible."

Mark Dubovoy, a venture capitalist and founder of Information Technology Ventures, believes that the high value placed on entrepreneurship here will continue to drive innovation and keep talent in the Valley. "The whole infrastructure has a special attitude toward startup businesses," says he. Considering that this area has been home to some of the most successful startups of the past 20 years, having that attitude will undoubtedly continue to pay off. --A.F.

FORTUNE created its list of boomtowns (cities that have created the most wealth in the past several years) in partnership with the Business Location Practice of Arthur Andersen. In compiling this list, Andersen used three kinds of research: (1) a survey of executives worldwide, (2) a survey of economic development organizations for 160 cities, and (3) independent research done by Andersen. The information was analyzed to select cities that satisfied basic business-location needs and also demonstrated significant growth and wealth creation over a five- to ten-year period. FORTUNE made the final ranking decisions, incorporating the results of Arthur Andersen's work with information and analysis supplied by writers and researchers. Arthur Andersen's research highlights are available on the Internet at www.arthurandersen.com/Best Cities, or you may obtain a copy by faxing your request to Dan Malachuk, Andersen's director of Business Location Services, at 212-445-9454.