Tech stocks have proven they have the potential to deliver incredible returns. Technology companies by their very nature are innovators, and that means every once in a while, one them captures lightning in a bottle. Like the iPhone, or the Echo smart speaker, or services we take for granted today like streaming video.
Speaking of the iPhone and Echo, the companies behind those products have been in the spotlight for years. To realize the big gains from tech stocks, the key is pick a company that has promise — but has yet to blow up in a huge way.
Here are a few such companies to consider:
- Alibaba (NYSE:BABA)
- DocuSign (NASDAQ:DOCU)
- Fastly (NYSE:FSLY)
- JD.Com (NASDAQ:JD)
- NVIDIA (NASDAQ:NVDA)
- Alarm.com (NASDQ:ALRM)
- Enphase Energy (NASDAQ:ENPH)
Each of these has the potential to be among the top tech stocks for those looking to invest in tomorrow’s next big thing.
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In a sense, Alibaba doesn’t really belong on this list. The Chinese e-commerce giant is already in an elite group of high-performance tech stocks. With BABA stock repeatedly closing at all-time highs in October, the company’s market capitalization now sits at $858 billion. The trillion dollar market cap club is within sight.
However, the reason I have Alibaba on this list is its position in China — and potential for massive growth.
Prior to the novel coronavirus pandemic, Alibaba was primarily active in larger cities and with non-perishable goods. However, as the Wall Street Journal reports, the pandemic resulted in more Chinese consumers signing up for Alibaba accounts.
The company experienced serious growth in smaller cities. It also made inroads in home delivery of fresh food including fruits and vegetables.
Alibaba has reached its current level of success by focusing on large urban centers. Just imagine what the future growth for BABA stock will be now that it’s making inroads in smaller cities — where over 70% of China’s population lives.
The icing on the cake? Alibaba owns a 33% equity stake in Ant Financial — which is set for a coming IPO that could raise a record $34 billion.
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Customer relationship management (CRM) software began to gain speed as cloud computing entered the mix, making it easier have employees at multiple locations all feeding into the same system. Salesforce.com, which was founded in 1999, has been a CRM pioneer and remains the market leader.
Last year, Gartner published a report on CRM software showing that it is “both the largest and the fastest growing enterprise application software category.” Global CRM spending in 2018 was up 15.6% to hit $48.2 billion. With a 19.5% market share in 2018 (up from 18.3% the previous year), Salesforce.com had more than double the CRM revenue of its closest competitor.
That performance has already boosted CRM stock. From the start of 2017 to the end of last year, it gained 141%. That was nothing compared to 2020.
The pandemic — and the realization that client relationship management needs to be able to survive a remote work environment — has naturally increased investment in CRM tools. As a result, in the second quarter, Salesforce.com delivered results that Bank of America analyst Kash Rangan described as “stupendous.”
Until the September tech stock selloff, CRM stock was up 82% so far in 2020. It has yet to recover from that dip. This makes Saleforce.com an even more tempting investment if you want tech stocks in your portfolio set for big future growth.
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DocuSign is another company that has seen adoption of its technology greatly accelerated by the pandemic. Electronic signatures were beginning to make headway, but with people working from home and social distancing in effect? Signing documents the old-school way is no longer just inconvenient, it can be risky.
More importantly for future growth, now that DocuSign’s eSignature is being widely adopted, it’s going to remain in use. No one is going to want to go back to having to travel or courier documents around for hand signatures when they can get an eSignature instantly.
DOCU stock had seen modest growth over the past two years. In 2020, it’s been explosive. DOCU started the year at $66.37 and closed at $268.80 on September 1. That’s an impressive 305% gain in just eight months.
Like many tech stocks, DocuSign shares took a hit after the September selloff. Now trading under $220, the decline just makes DOCU stock all the more attractive.
Just two days ago, Baird Analyst William Power initiated coverage on DOCU stock with an Outperform rating and $280 price target, noting that, “The company has established itself as the global eSignature leader, which should drive broader growth opportunities over time.”
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I have an upcoming close-up on Fastly, the edge computing specialist. FSLY earns an ‘A’ rating in Portfolio Grader, and shows tremendous potential for growth.
The pandemic rapidly boosted demand for edge computing services. This is a distributed model that brings data centers closer to the areas where services are being used. Doing so makes for websites and internet services that are much faster — and everyone wants faster data, whether working from home, online shopping, streaming movies or playing a video game.
Fastly investors saw huge gains this year. Up until three weeks ago, their shares had gained nearly 500% since the start of the year.
FSLY stock is currently a real buying opportunity. It’s been hit hard in October because it’s set to miss its third quarter revenue guidance. However, that is largely attributable to the challenges faced by in the U.S. by TikTok. The Chinese video sharing service just happens to be Fastly’s largest customer.
However, Fastly is much more than one customer and the demand for edge computing services is only going to grow.
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JD.com is another of China’s e-commerce giants. The company describes itself as “China’s largest online retailer and its biggest overall retailer, as well as the country’s biggest Internet company by revenue.”
Last year’s annual 6.18 sale event was a record-breaker for JD.com, with $29.2 billion in transaction volume. The sheer size of JD.com’s market and growth potential is huge, of course. China is a massive country, and it’s still early in the curve in terms of mass adoption of online shopping. All that points to ongoing growth potential for JD stock.
However, I want to point out a future-looking aspect of JD.com’s business. Delivery. The company has spent money to ensure it can deliver to China’s vast population. During that 6.18 sale last year, JD.com said that 91% of orders from its fulfillment warehouses were delivered the same or next day. In 2017, the Harvard Business Review featured this focus on delivery:
“One of the reasons JD stood out from the competition and expanded rapidly was due to heavy-investment in own logistics network and continuous efforts in supply chain improvement.”
The article also noted that the company is a pioneer in last mile autonomous delivery. On October 22, JD.com announced that will be the first company in the world to deploy level-4 autonomous delivery vehicles at scale. The company has an autonomous robot delivery system in operation in the city of Changshu, with plans to employ 100 autonomous delivery vehicles by the end of the year.
Autonomous delivery is a key to future growth in online shopping, and also offers the prospect of cutting JD.com’s delivery costs. JD stock has posted 113% growth so far in 2020, but I think this is one of those tech stocks that’s just beginning to take off.
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Chipmaker Nvidia has always been a force in the PC and gaming markets, where Nvidia video cards are the market leader. PC sales have been sliding for a decade, but PC gaming remains popular, helping to keep Nvidia sales growing. In fact, when the company released its new RT30 series video cards in September, they sold out almost instantly. There were lineups outside of stores reminiscent of the iPhone launch glory days. In a pandemic.
Video cards have been good to Nvidia and NVDA stock. However, I’m looking at “tomorrow.” For Nvidia, that’s data centers — the massive computing power needed for futuristic tech like AI and autonomous driving. Nvidia bet big on this technology and it’s paying off.
Remember when cryptocurrency miners snapped up every video card they could get their hands on to build massive, parallel processing rigs? That was a short-term boost for NVDA stock, followed by a big drop when the crypto currency market crashed.
Nvidia’s data center business uses the same basic concept, but on a far larger — and commercial — scale. It leverages Nvidia’s GPU expertise for parallel processing providing unprecedented computational power. In its last earnings report, data center revenue surpassed gaming for the first time in Nvidia’s history.
PCs and gaming got Nvidia to where it is today, but data centers are the future that will propel NVDA stock in its next big growth phase.
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Home security and home automation is a market that has begun to take off in recent years.
Wireless video cameras and doorbell cameras are becoming increasingly popular with consumers. Add in professionally monitored home security systems and the market is currently valued at $53.6 billion. And it’s projected to hit $78.9 billion by 2025.
The companies that make these cameras and the security companies that offer professional, monitored systems are the obvious winners. However, there’s another big beneficiary in the mix, and it should be on your radar if you’re looking for tech stocks with high potential for future growth.
Alarm.com operates behind the scenes of these connected solutions. It provides a cloud-based platform that integrates all these different devices and systems, plus connects them to the internet for remote access and monitoring. It has also expanded into home automation, including remote control of heating and cooling systems.
As more home security and home automation solutions become mainstream, demand for Alarm.com’s connectivity solution will grow. ALRM stock has posted growth of 243% over the past five years, but I expect the potential for much bigger gains in the future.
Enphase Energy (ENPH)
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Last on my list of tech stocks that could be tomorrow’s next big thing, we have Enphase Energy.
Oil and gas stocks have been big losers in 2020. They represent yesterday’s energy sources and while no one is counting the sector out quite yet, it’s clear that clean energy is the future. We’ve seen that with the surge in electric car stocks. Investors in Enphase Energy have also been richly rewarded in 2020.
Enphase energy specializes in solar home energy solutions. The company is a leader in the supply of the microinverters needed to connect solar panels to the electrical grid. Enphase has also expanded into home energy battery solutions and Wi-Fi monitoring of home solar installations.
For years, Enphase investors had to be patient. The time just wasn’t right for home solar installations to make a big splash. ENPH stock started out 2019 in the $5.00 range.
However, with growing awareness of climate change and the growing popularity of electric cars, home solar installations were increasingly in the spotlight. ENPH shares have rocketed in value, posting growth of over 2,000% since the start of 2019.
With investors dumping their oil and gas investments and looking to tomorrow, Enphase Energy is positioned to ride the solar wave to continued growth in the future.
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