Of course, technology stocks have gone through a difficult phase lately, but let’s face it: in the long run, the world will become more digital, more intelligent and automated. That is why it may be a good idea for long-term investors to take advantage of the recent sale of technology and look at companies that are building the essential technology platforms to drive the future.
Although their stocks tend to be expensive, Amazon.com (NASDAQ: AMZN), Tesla (NASDAQ: TSLA), Illumina (NASDAQ: ILMN) they are all well below their 52-week highs. With the current discount, each of these actions should be placed on your watch list, at the very least, as your technologies are expected to become the key platforms of the 2020s and beyond.
Image source: Getty Images.
1. Amazon
FAANG member Amazon did not actually build one, but several platforms that will be central to our short and long term economic future. It is important to note that Amazon pioneered the idea of cloud computing, allowing companies to securely connect to computing and storage resources as needed, rather than having to build them themselves. Today, Amazon Web Services is by far the number one cloud platform, generating revenue of $ 45.4 billion last year, while growing 30% with operating margins of 30%.
And, of course, Amazon was the pioneer in fulfilling the promise of e-commerce at the beginning of the Internet. Over years and decades of consistent improvements and investments, Amazon can now deliver virtually any item available, and many in just one day to Prime subscribers. With Amazon recently investing in its own air transport platform, including a new stake in the air freight partner Air transport services group (NASDAQ: ATSG) and an investment in Rivian to produce last-mile electric delivery vehicles, we expect Amazon to continue to improve its e-commerce delivery platform for years to come.
Amazon platforms also extend to media and entertainment. Not only does Amazon have one of the leading streaming services on Prime Video, but its Fire Stick is becoming an essential connected TV advertising platform. The beauty of Amazon’s Fire stick is that it can combine consumer data from your e-commerce platform to target advertising on your connected TV streaming platform. In the last quarter, Amazon once again led the global market in sales of connected TV sets, growing 36% year on year and with 12.1% market share. This should drive Amazon’s growing digital advertising business for years as well.
Having leading cloud platforms, e-commerce and digital ads should make Amazon a strong producer in the coming years, even after the pandemic.
Image source: Tesla.
2. Tesla
There is much controversy about Tesla’s stock on the battlefield. Bulls says it will become the most valuable and revolutionary technology company in the world, while the bears say it is just another auto company headed by a social media-addicted snake oil salesman. The answer is probably somewhere in the middle, but I would definitely lean more towards the former than the latter.
Tesla currently leads the electric vehicle market, with approximately 69% EV market share in the United States and 18% worldwide, more than three times its closest competitor. Say what you want about CEO Elon Musk’s behavior and stock valuation, but no one can deny that Tesla has established a world-class mass market EV brand faster than many traditional automakers thought possible. And that interruption should continue in the future; management expects an impressive 50% annualized growth rate in the coming years, as the company penetrates further into China and Europe.
Most people understand Tesla vehicles, but how will Tesla become a “platform”? The key will be its fully autonomous software, which the company expects to provide a leading autonomous taxi network in the future, whenever regulations permit. Unlike other companies like Waymo, which uses LiDAR sensors to achieve complete autonomous driving, Tesla arms its current vehicles with eight video cameras, all of which constantly record 360-degree videos and send visual data back to Tesla, where this data is loaded into the company’s neural network. This neural network is constantly improving Tesla’s FSD platform and, according to Musk, the company’s fully autonomous software will be able to meet or exceed the safety of the human driver by the end of this year. “This is a big deal,” said Musk in a recent conference call with analysts.
Armed with a proprietary autonomous chip, Tesla believes it can win the battle for autonomy by allowing current Tesla owners to “rent” their cars to others when they are not using their vehicles. It appears from recent statements that Musk believes that Tesla will receive annuity flows similar to software from such a service, thus justifying Tesla’s very high rating. Musk said he was also open to licensing Tesla’s standalone software to other automakers.
The stock is undoubtedly expensive if you see the company purely as an automaker. However, if you believe in the story of complete autonomous driving, when you combine Tesla’s product portfolio in electric cars and trucks, battery production, autonomous software, along with solar panels and large-scale energy storage, Tesla can become a great clean energy platform in the long run. How much you want to pay for this scenario, of course, depends on each investor.
Image source: Getty Images.
3. Illumina
Another form of technology is biotechnology, and a major development in biotechnology is the use of genetic testing. Genetic testing was previously very expensive and used only by research organizations, governments and universities, but a leading genetic testing platform Illumina (NASDAQ: ILMN) has done an excellent job of reducing the cost of genetic testing over time.
With 90% of all genetic sequence data executed on Illumina machines, Illumina is a dominant and crucial technology platform, paving the way for the future of medicine. Since 2007, when Illumina launched its first gene sequencing system, the company has reduced costs by a factor of 10,000. Still, Illumina is not stalled, as it expects to cut its costs from $ 600 per genome to $ 100 in the near future. If Illumina can reach that level, it will open an era of truly personalized medicine.
Due to falling costs, genomic sequencing has expanded beyond pure research environments to clinical settings, changing the way doctors treat and track a variety of diseases, from oncology to prenatal testing. In fact, 55 types of cancer treatments now require complementary genetic testing. And Illumina just doubled the number of cancer tests with the $ 8 billion acquisition of GRAIL, a downstream company that uses Illumina’s platform to build tools for multiple cancer tests.
And don’t forget the potential favorable wind from COVID. After all, COVID vaccines were produced from data collected on Illumina machines. Illumina is currently helping governments track new variants of COVID as they emerge around the world.
In the future, you can bet that there will be more emphasis on genetic surveillance for infectious diseases and future outbreaks. This should add just one more favorable wind to this critical biotechnology platform in this decade and beyond.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and wealthier.