Sure, technology stocks have had a rough go of it of late, but let's face it: Over the longer-term, the world will become more digital, smarter, and automated. That's why it may be a good idea for long-term oriented investors to take advantage of tech's recent sell-off and look to the companies building the essential tech platforms powering the future.
While their stocks tend to be on the expensive side, Amazon.com (AMZN -1.65%), Tesla (TSLA 4.96%), Illumina (ILMN -1.48%) are all well off their 52-week highs. Currently discounted, each of these stocks should be put on your watchlist at the very least, as their technologies should become bedrock platforms of the 2020s and beyond.
Image source: Getty Images.
1. Amazon
FAANG member Amazon has actually built not one, but several platforms that will be central to our near and long-term economic future. Of note, Amazon pioneered the idea of cloud computing, allowing businesses to safely plug into computing and storage capability as needed, instead of having to build it themselves. Today, Amazon Web Services is far and away the number one cloud platform, bringing in $45.4 billion in revenue last year, while growing 30% with 30% operating margins.
And of course, Amazon was the pioneer in realizing the promise of e-commerce back at the dawn of the internet. Through years and decades of consistent improvements and investment, Amazon can now deliver just about any item under sun, and many in just one day for Prime subscribers. With Amazon recently investing in its own air shipping platform, including a new stake in air freight partner Air Transport Services Group (ATSG) and an investment in Rivian to produce electric last-mile delivery vehicles, look for Amazon to continue to improve its best-in-class e-commerce delivery platform in the years ahead.
Amazon's platforms also extend to media and entertainment. Not only does Amazon have one of the leading streaming services in 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 marry consumption data from its e-commerce platform to target advertising over its connected streaming TV platform. Last quarter, Amazon once again led the global market in connected TV device sales, growing 36% year-over-year and with 12.1% market share. That should power Amazon's ascendant and high-margin digital advertising business for years as well.
Having leading cloud, e-commerce, and digital ad platforms should make Amazon a strong grower in the years ahead, even post-pandemic.
Image source: Tesla.
2. Tesla
There's a lot of controversy over the battleground stock of Tesla. Bulls claim it will become the most valuable, game-changing technology company in the world, while bears claim it's just another car company headed by a social media-addicted snake oil salesman. The answer likely lies somewhere in between, but I would definitely lean more toward the former than the latter.
Tesla currently leads the electric vehicle market, with roughly 69% EV market share in the U.S. and 18% share worldwide, more than three times its closest competitor. Say what you want about CEO Elon Musk's behavior and the stock's valuation, but no one can deny Tesla has established a world-class, mass-market EV brand faster than many legacy automakers thought possible. And that disruption should continue well into the future; management forecasts a stunning 50% annualized growth rate over the next several years as the company further penetrates China and Europe.
Most people understand Tesla's vehicles, but how is Tesla going to become a "platform?" The key will be its full self-driving software, which the company hopes will give it a leading autonomous taxi network in the future, whenever regulations allow. Unlike other companies such as Waymo, which uses LiDAR sensors to achieve full self-driving, Tesla arms its current vehicles with eight video cameras, all of which constantly record 360 degree video and beams visual data back to Tesla, where that data is loaded into the company's neural network. That neural network is constantly improving Tesla's FSD platform, and according to Musk, the company's full self-driving software will be able to meet or exceed human driver safety by the end of this year. "This is a big deal," Musk said on the recent conference call with analysts.
Armed with a proprietary self-driving chip, Tesla believes it can win the battle for autonomy, allowing current Tesla owners to potentially "rent out" their cars to others when not using their vehicle. It appears from recent statements that Musk believes Tesla will receive software-like annuity streams from such a service, thereby justifying Tesla's current sky-high valuation. Musk said he was also open to licensing Tesla's self-driving software to other automakers as well.
The stock is no doubt expensive if you view the company purely as an automaker. However, if you believe in the full self-driving story, when you combine Tesla's product portfolio across electric cars and trucks, battery production, autonomous software, along with solar panels and large-scale energy storage, Tesla could become a major clean energy platform over the long-term. How much you want to pay for that scenario is, of course, up to each investor.
Image source: Getty Images.
3. Illumina
Another form of technology is biotechnology, and one major development in biotech is the use of genetic testing. Genetic testing was formerly very expensive and only used by research organizations, governments, and universities, but leading genetic testing platform Illumina (ILMN -1.48%) has done a great job of bringing down the costs of genetic testing over time.
With 90% of all genetic sequence data having been run on Illumina's machines, Illumina is a dominant and crucial technology platform paving the way for the future of medicine. Just since 2007, when Illumina introduced its first gene sequencing system, the company has brought down costs by a factor of 10,000. Still, Illumina isn't standing still, as it hopes to cut its $600 costs per genome to $100 in the near future. If Illumina can get to that level, it will open up 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 screen a variety of diseases, from oncology to pre-natal testing. In fact, 55 types of cancer treatments now require a companion genetic test. And Illumina just doubled down on cancer screening with the $8 billion acquisition of GRAIL, a "downstream" company that uses Illumina's platform to build tools for multi-cancer screening.
And don't forget the potential tailwind from COVID. COVID vaccines were, after all, produced from data gleaned from Illumina's machines. Currently, Illumina is helping governments track new COVID variants as they crop up around the world.
In the future, you can bet that there will be increased emphasis on genetic surveillance for infectious diseases and future outbreaks. That should add just one more tailwind to this critical biotech platform this decade and beyond.
