It’s easy to name today’s tech world darlings, with companies like Apple continuing to dominate, 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 and their shareholders have seen enormous paper profits fritter away. Just look at the list of tech titans from the personal computer-driven, client-server era of the 1980s and 1990s. Today, no honest tech investor considers IBM, Hewlett-Packard, Dell, Cisco or Intel industry leaders anymore. The companies that were successful in the past have 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 might surprise you. Find out why investors should be bullish on each, even though tech stocks, in general, are plateauing.
1. Palo Alto Networks
- Ticker: PANW
- Price: $194.12
- 52-week range: $108.15 to $197.20
- Annualized return since its July 20, 2012 IPO at $42: 29.06 percent
Cybersecurity is a rapidly expanding market for investors and businesses alike, all thanks to hackers who 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 in 2017. That’s an 11 percent compounded annual growth rate over five years. At least one company will become the standard-bearer for cybersecurity. While there’s no way to be certain that Palo Alto Networks will be “the one,” it gets the benefit of the doubt — it is currently one of the largest companies in the industry.
- Ticker: MELI
- Price: $339.46
- 52-week range: $229.09 to $417.91
- Annualized 10-year return: 21 percent
MercadoLibre is the Latin American e-commerce pro. It’s based in Buenos Aires, Argentina, but its shares were offered in the U.S. 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. It’d be remiss not to mention the risks of investing abroad, particularly in Latin America. Political instability is common, though it impacts some countries more than others so do your research before you invest.
- Ticker: TCEHY
- Price: $49.25
- 52-week range: $31.41 to $61.00
- Annualized 9-year return: 44.51 percent
Many American tech investors follow Alibaba, but they might not know Tencent and its co-founder and CEO Ma Huateng.
In China, three companies dominate digital advertising spending: Alibaba, Baidu and Tencent. Tencent accounted for 12.4 percent of China’s 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. Particularly exciting is Tencent’s mobile social media app WeChat, which has over 1 billion monthly active users. WeChat users aren’t just simply chatting — they use the app to purchase and pay for goods as well, 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 31 percent of Tencent. Unfortunately, Naspers also is thinly traded.
- Ticker: BABA
- Price: $179.50
- 52-week range: $114.80 to $206.20
- Annualized return since September 9, 2014 IPO at $68: 27.46 percent
Alibaba is trading at an all-time high, which might worry short-term investors, but most investors are in it for the long haul. It’s been one of the best-performing IPOs of the past decade, and there’s likely more great things to come 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. (57 percent and 43 percent respectively, in 2016), and China is a much bigger opportunity with 4.27 times the population and 2.98 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: $227.14
- 52-week range: $102.31 to $254.50
- Annualized 10-year return: 27.01 percent
NVIDIA’s lead in graphics processors (semiconductors) in this tech era might be akin to Intel’s dominance with its microprocessors in the PC-centric, client-server computing paradigm of the 1980s and 1990s. Grab your sunglasses, because NVIDIA is one of the coolest stocks to invest in.
- Ticker: FB
- Price: $173.86
- 52-week range: $144.42 to $195.32
- Annualized return since its May 18, 2012 IPO at $38: 28.85 percent
Facebook is a winner; everyone knows that. What some investors might 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 Pivotal Research Group, the two companies accounted for 73 percent of U.S. digital advertising revenues in the first half of 2017. Even more astounding, however, is that they were responsible for 83 percent of the industry’s growth.
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- Ticker: TSLA
- Price: $299.92
- 52-week range: $244.59 to $389.61
- Annualized return since its June 29, 2010 IPO at $17: 43.16 percent
There’s no question that Tesla’s electric vehicles have shaken up the auto industry. Although the company only shipped just over 100,000 of its EVs last year versus 8.9 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 a risky pick.
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- Ticker: ADBE
- Price: $224.08
- 52-week range: $130.82 to $233.17
- Annualized 10-year return: 19.31 percent
Adobe is one of the few vintage tech stocks that not only survived but flourished in the transition to cloud computing. The credit goes to 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: GOOGL
- Price: $1,040.75
- 52-week range: $915.31 to $1,198.00
- Annualized 10-year return: 13.55 percent
Everyone knows Alphabet — Google’s parent company. 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. It wouldn’t be far-fetched to say that 10 years from now, Alphabet will lead other categories of their own creation that most of us haven’t even contemplated yet.
- Ticker: MSFT
- Price: $95
- 52-week range: $67.14 to $97.90
- Annualized 10-year return: 13.55 percent
Like Adobe, 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 an 88.6 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 is the top cloud-computing vendor out there.
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 the 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 might 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 1990s 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 so the future is still unclear. 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 saw a year-over-year decrease for the first time at the end of 2017, a 5.6 percent decline from Q4 of 2016. Apple needs a new trick. Perhaps a greater cloud computing focus could do it?
Click to find out which expensive stocks might be worth the investment.
Stock prices were sourced from Nasdaq.com (except for the 52-week range of Tencent ADR shares, which was sourced from Yahoo Finance) and were accurate as of market close on May 1, 2018. Annual rate of return is CAGR calculated to the closest full-year increment.
Paul Meeks is a financial journalist and equity analyst. His investment advice does not reflect the views of GOBankingRates.
Joel Anderson contributed to the reporting for this article.
About the Author
In addition to being a financial journalist for decades, Paul has been an equity (stocks) analyst or portfolio manager at marquee firms. For Merrill Lynch Investment Managers (since acquired by BlackRock), he started and managed the world’s largest technology mutual funds franchise with $8 billion invested. Paul has taught Personal Finance and Investments courses since 2005.