Technology helps shape nearly every industry under the sun, and the influential role that it plays in business will only increase. Tech's far-reaching impact helps explain why the sector has played the biggest role in powering the market's overall growth across the last two decades.
Successful long-term investments in highly influential tech companies might just change your life as well. Read on to find out why buying shares of Amazon (AMZN 1.82%), Taiwan Semiconductor Manufacturing (TSM 0.25%), and Impinj (PI 1.45%) looks like a smart move.
Taking into account all that Amazon has accomplished since its initial public offering in 1997 (as well as its current market cap of roughly $1.5 trillion), it might be easy to forget that the e-commerce and cloud computing giant is still relatively young in terms of its development. The company stands as one of history's most innovative and successful businesses, and its growth story is only just getting started.
Crucially, Amazon hasn't shied away from the possibility of failure. The company's push into the mobile space with the Amazon Fire phone in 2013 was a major flop, but that didn't stop founder and CEO Jeff Bezos and his management team from making more big bets in the hardware space.
If Bezos and Amazon had been easily deterred, the company might never have launched its Echo smart speaker hardware and related Alexa voice-assistant software. Because of its willingness to take risks, the company now enjoys a leadership position in voice-based operating systems that's bolstering its e-commerce business and aiding growth initiatives in revolutionary tech trends such as artificial intelligence.
This same willingness to branch out and innovate enabled the company to make an early move into cloud computing after building a dominant position in online retail. Amazon's online retail and cloud computing businesses still have huge runways for long-term expansion, and it's likely that the company's wealth of resources, fantastic leadership team, and penchant for innovation will allow it to build strong positions in new growth industries. Few businesses look better-positioned to thrive over the long term.
2. Taiwan Semiconductor Manufacturing Company
Between semiconductor companies that only design chips and those that manufacture some of their own designs but lack the capacity to meet their full production needs, there's a huge demand for third-party chip fabrication. When most leading chip companies need semiconductor foundry services, they turn to Taiwan Semiconductor Manufacturing Company (TSMC).
Technology analyst Steve Milunovich estimates that TSMC fabricates roughly 80% of the semiconductors that are used in the U.S. A report from JPMorgan found that the company produces roughly 50% of the world's chips and captures roughly 80% of fabrication profits.
Taiwan Semiconductor's leadership position in high-performance chip fabrication has only become more pronounced in recent years, and it will be difficult for competitors to disrupt. Fabrication is resource intensive, which creates a barrier to entry for new competitors, and no current player boasts superior economies of scale or technological advantages.
With technologies including 5G, artificial intelligence, the Internet of Things, and cloud computing spurring increased demand for semiconductors, TSMC will likely enjoy strong demand tailwinds over the next decade. Many of these emerging technology trends are still in very early innings.
TSMC also pays a dividend, with shares yielding roughly 1.6% at current prices. The fabrication leader's stock has climbed roughly 46.5% year to date thanks to rising semiconductor demand and signs that competitors, including Intel, are falling behind. However, shares still stand out as a worthwhile investment, trading at roughly 26 times this year's expected earnings.
This year has been a challenging one for Impinj. The small-cap semiconductor specialist develops radio frequency identification (RFID) tags, sensors, and software to use electromagnetic fields to automatically identify and track tags that are attached to objects. Those tags store and transmit useful data. RFID is an emerging technology market that could go on to post explosive growth, but the coronavirus pandemic has crushed the company's sales and complicated its outlook.
While the business grew year over year by 24.9% in the last fiscal year and 44.6% in the first quarter of 2020, year-over-year revenue sank roughly 31% in both the second and third quarters. The retail industry is by far the largest end market for Impinj's technologies, and store closures in response to the pandemic, combined with reduced consumer traffic following store reopenings, have dampened the RFID company's performance. The automotive and airline industries represent additional significant sales streams and potential long-term growth drivers, and these areas have also faced negative virus-related pressures.
It's reasonable to expect that Impinj will continue to face significant demand headwinds in the near term, but the long-term outlook for the RFID technologies market remains favorable, and risk-tolerant investors have the opportunity to build a potentially life-changing position in the company at a discount.
In the retail space, the company has long-term growth opportunities providing RFID tags and readers that help cut down on theft and enable streamlined self-checkout. RFID technologies also have the potential to pave the way for dramatic efficiency improvements in supply chains, allowing inventory to be taken and goods to be tracked with greater speed and accuracy. Adoption for both of these applications remains at very early stages, and there's a good chance that a range of new use cases for the company's RFID solutions will emerge in the coming decade.
For patient investors willing to look beyond substantial challenges in the near term in pursuit of the potential for market-crushing returns, Impinj stock could turn into a huge winner.