Investors sometimes find it hard to buy into stocks after they've gone up, especially if they've climbed to multiples of their share price in just a few years. But savvy investors know that a history of strong share-price appreciation is a sign of quality.
With that in mind, we asked three Motley Fool contributors to share their favorite tech stock that's supercharged to fly to the moon (and maybe beyond). They picked NVIDIA (NVDA 2.94%), Shopify (SHOP 3.33%), and DocuSign (DOCU +1.00%). Climb aboard the rocket ship and find out why you haven't missed the ride.
Image source: Getty Images.
So many secular trends in one place
Danny Vena (NVIDIA): There's little doubt that NVIDIA (NVDA 2.94%) has been a supercharged long-term performer, gaining 3,910% over the past decade. The tech stock is up 93% over the past year -- and that could be just the beginning.
The lion's share of NVIDIA's revenue comes from its state-of-the-art gaming chips. Sales from its largest segment has grown rapidly, surging 106% year over year in the most recent quarter. The company was able to capitalize on the rampant adoption of video games over the past year, illustrating for the next generation of gamers why its graphics processing units (GPUs) are the gold standard.
Gaming isn't NVIDIA's only driver. Cloud computing is another secular trend that's ongoing and continues to gain steam. NVIDIA GPUs have become the industry standard when it comes to moving information with lightning speeds through the data center and propelling it across the internet. That's why every significant cloud operator from Amazon Web Services to Alphabet's Google Cloud has adopted NVIDIA chips.
The GPU's parallel processing -- which handles a multitude of complex mathematical computations simultaneously -- not only renders lifelike images in video games, but also powers the unique needs required by artificial intelligence (AI). Every cloud provider offers AI as part of its suite of services, and NVIDIA processors are a staple of them all. That's why the company's data center revenue jumped 79% year over year in the first quarter.
It isn't just the current secular trends of gaming, cloud computing, and AI that will support NVIDIA's future growth. While it represents just a tiny portion of sales right now, NVIDIA is working with a wide cross section of the world's top automakers on self-driving technology, providing not only the processors, but contributing to the development of the software stack that will unpin a future where autonomous vehicles are a reality.
There's simply no reason to believe that NVIDIA's solid growth won't continue. The company is plowing a large portion of its revenue into developing the next iteration of its cutting-edge processors. Research-and-development expense grew 57% in Q1, representing 20% of total revenue.
In the most recent quarter, these technologies combined to generate revenue of $5.66 billion, which grew an astounding 84% year over year after generating 53% gains last year.
If you're looking for a supercharged stock that's going to the moon, look no further than NVIDIA.
Image source: Getty Images.
Shopify is headed for the stratosphere
Chris Neiger (Shopify): Many investors came to love Shopify last year because the company's e-commerce platform thrived during the pandemic as businesses large and small pivoted to online sales. The company's growth helped Shopify's stock surge 643% over the past three years.
Consider Shopify's impressive first-quarter results (reported on April 28). Revenue skyrocketed 110% and gross merchandise volume jumped 114% from the year-ago quarter.
But Shopify was already growing before the pandemic and will continue to do so after. Why am I so confident about this? Because if you look at the rise of e-commerce sales in the U.S. over the past few years, you'll see that just over a decade ago, only 4% of all U.S. retail sales occurred online. Now, it's 13.6%.
Everyone from your local coffee shop selling their roasted beans to Kraft Heinz uses Shopify's e-commerce platform. And yet even with that massive reach, there's still more room for the company to grow. Why? Because while e-commerce sales have exploded over the past 10 years, they still only account for a fraction of total retail sales, leaving plenty of room for more growth.
Over the past six months, Shopify's share price has experienced some volatility, thanks to short-sighted investors leaving tech stocks as the U.S. economy opens back up. Don't follow their lead. Shopify's stock is still up 16% over this period despite the dips, and the company's huge bet on the fast-growing e-commerce market should easily outpace the broader market in the years to come.
Saving time will never go out of style
Brian Withers (DocuSign): Have you ever had to collect signatures on a paper document? The process is downright awful. There's so much time wasted printing and preparing the paper document, hunting people down for their physical signature, and maybe even using the dreaded fax machine.
DocuSign's e-signature tools have made this process significantly easier. In fact, a person seeking digital signatures doesn't even have to leave their desk, and using the company's tools, accomplishes the task in a fraction of the time. These benefits have not gone unnoticed by large businesses.
The company continues to grow, even as businesses are going back to physical offices. Stellar top-line results are supported by large customer growth and solid net-dollar retention.
|
Metrics |
Q1 FY2021 |
Q4 FY2021 |
Q1 FY2022 |
QoQ change |
YoY change |
|---|---|---|---|---|---|
|
Revenue |
$297 million |
$431 million |
$469 million |
9% |
58% |
|
Enterprise and commercial customers |
89,000 |
125,000 |
136,000 |
9% |
53% |
|
Net dollar retention |
119% |
123% |
125% |
+2% |
+6% |
Data source: Company earnings presentation. Note: Q1 FY2022 ended April 30, 2021. QoQ = quarter over quarter. YoY=year over year.
To get a better understanding of why this stock could go to the moon, it's important to know how this e-signature company makes money. A majority (88%) of its revenue comes from enterprise and commercial customers.
When a business first signs on to be a customer, it estimates the number of "envelopes" or documents that will be signed over the course of a year. This number is often underestimated as there's typically no central tracker that keeps count of this kind of data. The company signs up for an annual plan based on the features and number of envelopes needed (see image below).
Image source: DocuSign investor presentation.
Once the tools are available to employees, they realize the massive time-saving benefits. Inevitably, the usage spreads to more processes and departments. As the envelopes get "used up," it gives the chance for sales reps to check in on the customer and likely upgrade their agreement. This is part of the reason why its net-dollar retention trend is so strong.
The company has increased its enterprise and commercial customer base by a massive 53% in the past year, and these customers are just now starting to realize the benefits of e-signatures. This is a massive tailwind and part of the reason why customers spending more than $300,000 annually has grown at a 46% compound annual growth rate over the last few years.
Its growth has been primarily driven by its e-signature product so far, but it has another massive opportunity. It's barely tapped into the potential of its smart contracts and Agreement Cloud software.
Between its flagship timesaving e-signature tool and the possibility of helping customers manage the entire lifecycle of agreements, this company has rocket-ship potential. Not only could this stock go to the moon, if investors are patient enough, it just might reach the stars.
