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It’s easy to name today’s tech world darlings, but it’s difficult to predict how well these businesses will be doing a decade from now. Tech is littered with the corpses of companies who might have led their sectors at one point, but now they’re shadows of their former selves. Their shareholders have seen enormous paper profits frittered away. Just look at the list of tech titans from the personal computer-driven, client-server era of the 1980s and ’90s. Today, no honest tech investor considers IBM, Hewlett-Packard, Dell, Cisco or Intel industry leaders anymore. They’ve given way to internet and cloud computing companies.
Some of these champs of the new tech era are on our list of company stocks that will dominate the landscape in the future, but others may surprise you. We’ll share why we’re bullish on each, even though tech stocks in general are plateauing.
- Ticker: GOOGL
- Price: $998.31
- 52-week range: $743.59 – $1,008.61
- Annualized 10-year return: 13.4 percent
Everyone knows Alphabet — Google’s parent company. We think Google, and Alphabet at large, will keep their mojo because they’re strong in three critical areas: Digital advertising, mobile operating systems and cloud computing. We’re confident that 10 years from now Alphabet will lead other categories that they’ll create and we haven’t even contemplated.
- Ticker: BABA
- Price: $152.15
- 52-week range: $81.94 – $156.41
- Annualized return since September 9, 2014 IPO at $68: 32.1 percent
Alibaba is trading at an all-time high, which might worry short-term investors, but we’re in this for the long haul. It’s been one of the best-performing IPOs of the past decade, and we expect great things from Alibaba in the future.
The company has a greater share of the e-commerce market in its native China than Amazon does in the U.S. (56 percent and 43 percent respectively, in 2016), and China is a much bigger opportunity with 4.11 times the population and 2.55 times the internet users. Like Amazon, Alibaba is spreading its tentacles beyond e-commerce into tech’s hottest area, cloud computing, which should continue to drive growth.
- Ticker: NVDA
- Price: $166.15
- 52-week range: $54.76 – $169.30
- Annualized 10-year return: 18.9 percent
NVIDIA’s lead in graphics processors (semiconductors) might be akin in this tech era to Intel’s dominance with its microprocessors in the PC-centric, client-server computing paradigm of the 1980s and ’90s. Grab your sunglasses, because NVIDIA is one of the coolest stocks to invest in.
- Ticker: FB
- Price: $166.00
- 52-week range: $113.55 – $166.17
- Annualized return since its May 18, 2012 IPO at $38: 32.0 percent
Facebook has been a winner. Everyone knows that. What some investors may forget, however, is that this stock was more than cut in half from its IPO price before it rebounded and kept on climbing.
In digital advertising, it’s a two-horse race between this social media giant and Google. According to the Interactive Advertising Bureau, the two companies accounted for 71 percent of U.S. digital advertising revenues in 2016. Even more astounding, however, is that they were responsible for 89 percent of the industry’s growth from 2015.
- Ticker: TSLA
- Price: $342.52
- 52-week range: $178.19 – $386.99
- Annualized return since its June 29, 2010 IPO at $17: 52.5 percent
There’s no question that Tesla’s electric vehicles have shaken up the auto industry. Although the company only shipped 76,230 of its EVs last year versus 10 million mostly internal combustion engine cars for General Motors, the companies have about the same market capitalization (outstanding shares multiplied by stock price).
Tesla’s CEO Elon Musk has been as good a salesman as a tech leader. He’ll need to continue to be so, because Tesla isn’t expected to make money or generate cash for years. The company must keep raising money from shareholders and bondholders to fund its ambitions. This is our riskiest, most controversial pick.
- Ticker: 0700.HK
- Price: HK $302.20
- 52-week range: $179.60 – $302.80
- Annualized 10-year return: 45.9 percent
We’re back to China with Tencent, which trades on the Hong Kong Stock Exchange, so prices are in Hong Kong dollars. Many American tech investors follow Alibaba, but they don’t know Tencent. They should.
In China, three companies dominate digital advertising spending: Alibaba, Baidu and Tencent. According to eMarketer, Tencent will account for 62 percent of China’s $50 billion digital advertising market in 2017. Just like Facebook and Google, the strong get stronger in Asia, too. Tencent is forecasted to gain an even bigger slice of the digital advertising pie. We’re particularly excited by Tencent’s mobile social media app WeChat, which has 938 million monthly active users, because these folks aren’t just chatting. They use WeChat to purchase and pay for goods, so these followers are even more engaged on the platform than Facebook’s users.
Since Tencent trades mostly in Hong Kong, it’s difficult to accumulate a position in the U.S. given that its over-the-counter stock (TCEHY) is relatively illiquid. Another way for Americans to buy Tencent is through the U.S. shares of a South African internet holding company, Naspers (NPSNY). This firm owns 33.3 percent of Tencent. Unfortunately, Naspers also is thinly traded.
- Ticker: ADBE
- Price: $149.53
- 52-week range: $95.42 – $150.40
- Annualized 10-year return: 13.6 percent
Adobe is one of the few vintage tech stocks that not only survived but flourished in the transition to cloud computing. We applaud long-term CEO Shantanu Narayen and his team for being among the first major tech companies to migrate to subscription-based, cloud-hosted software. During its evolution, Adobe has found and captured large, explosive markets. It has become a digital marketing and media powerhouse in addition to its decades-long leadership in digital content creation.
- Ticker: MSFT
- Price: $73.60
- 52-week range: $55.61 – $74.30
- Annualized 10-year return: 12.0 percent
Like Adobe, old-man Microsoft has found its fountain of youth under new, inspired leadership. Since 2014, CEO Satya Nadella has refocused the company on the cloud — just in the nick of time. In its first two decades (Microsoft went public in 1986), the firm grew rapidly with the proliferation of PCs.
Microsoft currently has a 90.6 percent share of the desktop PC operating system market, which is essentially all of the pie. The problem is that the pie isn’t growing, it’s shrinking. The company has shrewdly milked its mature installed base of PC users while redeploying its cash flow on cloud technologies.
Today, Microsoft Azure is No. 2 to Amazon Web Services in the critical Infrastructure as a Service (IaaS) cloud business. According to a recent survey of IT purchasers by the Cloud Security Alliance, Microsoft controlled 28.4 percent of the IaaS market while Amazon had 37.1 percent. We’re confident that Microsoft, along with other cloud kingpins Amazon and Google, will have a long run in this market, which is huge and growing fast.
9. Palo Alto Networks
- Ticker: PANW
- Price: $139.40
- 52-week range: 107.31 – $165.69
- Annualized return since its July 20, 2012 IPO at $42: 27.0 percent
Cybersecurity is a large and explosive market as hackers continue to regularly attack companies and individuals. According to a recent report by MarketsandMarkets, the global market for cybersecurity is expected to grow to $231.9 billion in 2022 from $137.9 billion today. That’s an 11 percent compounded annual growth rate over five years. At least one company will become the standard-bearer for cybersecurity. We’re not certain that Palo Alto Networks will be “the one,” but let’s give it the benefit of the doubt — it is currently one of the largest companies in the industry.
- Ticker: MELI
- Price: $282.38
- 52-week range: $148.71 – $297.95
- Annualized 10-year return: 31.2 percent
Mercadolibre is the Latin American e-commerce pro. It’s based in Buenos Aires, Argentina, but its shares were offered here on NASDAQ in an August 2007 IPO. Its business combines most of the best aspects of U.S. internet shopping leaders like Amazon, eBay and PayPal.
Interestingly, eBay had been Mercadolibre’s largest shareholder with a 20 percent stake, but it sold the bulk of its shares in October 2016. We’d be remiss if we didn’t highlight the risks of investing abroad, particularly in Latin America. Political instability is common, though it impacts some countries more than others.
There are three conclusions to draw from this future tech stars list. First, investors should be willing to go abroad to find them — two of our companies are Chinese, and one is Argentine. Second, companies that dominate cloud computing should reign for years. Adobe, Alibaba, Alphabet and Microsoft are all propelled by cloud-computing growth. Third, you may find the next great tech company where you least expect, wrapped inside a car company like Tesla.
It’s also important to remember that tech fortunes can change — remember all those power players of the 1980s and ’90s no one hears about anymore? Thanks to the strength of its Amazon Web Services cloud computing arm and willingness to innovate in all areas (see its recent purchase of Whole Foods), Amazon will likely continue to be a tech star.
The future of Apple is more uncertain, however. It might be the world’s largest company by market capitalization, and it’s been one of the best-performing tech stocks of the past decade, but it’s too reliant on iPhones and China for its growth. Expectations are particularly high for the next iPhone iteration due in September. Competition is fierce in China and consumers there are less inclined to buy $1,000-plus smartphones. Like the PC market before it, the global smartphone market is maturing. According to Gartner Group, worldwide smartphone shipments increased 7.1 percent in 2016, compared to 14.4 percent in 2015. Apple needs a new trick. May we suggest a greater cloud computing focus?