It's been a challenging couple of months for Wall Street and investors -- especially those invested in tech stocks.
As of early last week, both the broad-based S&P 500 and 125-year-old Dow Jones Industrial Average were in correction territory and lower by more than 10% from their highs. But things were even worse for the tech-centric Nasdaq 100 and Nasdaq Composite, which found themselves in bear market territory with declines of at least 20%.
Yet, in spite of this recent tech wreck, opportunity abounds for patient investors. That's because every correction and bear market throughout history has eventually been erased by a bull market rally. Buying great companies when the market discounts them and allowing your investment thesis to play out over time is a proven recipe for financial success.
Image source: Getty Images.
If you have $200,000 ready to invest and won't need this money for bills or to cover emergencies for at least the next eight years, the following three tech stocks all have the tools and intangibles necessary to make you a millionaire.
The first tech stock that can make patient investors a lot richer by the turn of the decade is social media platform Pinterest (PINS 0.89%).
A popular pandemic play, Pinterest has come crashing back down to Earth over the past 13 months. Shares of the company have lost close to three-quarters of their value following three consecutive quarters of monthly active user (MAU) declines and concerns about how Apple's (AAPL 0.64%) new privacy changes will impact advertising on Pinterest's platform. While these are palpable concerns, they merely scratch the surface and fail to recognize the true growth drivers making Pinterest tick.
For example, the nine-month decline in MAUs overlooks two other key trends. To begin with, the pandemic accelerated MAU growth well above historical norms. With COVID-19 vaccination rates ticking higher and life returning to some semblance of normal, it shouldn't be surprising to see people getting out more and spending a bit less time online. Nevertheless, MAU growth looking back four or five years remains well within historic norms.
Second, and far more important, Pinterest isn't having any trouble monetizing the MAUs that remain on its platform. Last year, average revenue per user (ARPU) rose 36% globally and more than double this amount (80%) internationally. This tells investors that advertisers and merchants are willing to spend big bucks to get their message in front of Pinterest's potential shoppers. The 80% international ARPU is also a signal that Pinterest's juiciest growth prospects remain beyond the borders of the United States.
As for privacy concerns -- i.e., Apple's new iOS requires users to approve or deny data tracking when downloading an app -- I view it as much ado about nothing. Whereas most social media platforms require extensive inputs from users to determine their interests, the entire premise of Pinterest's platform is to have users share the things, places, and services that interest them. This makes it incredibly easy for merchants to target their advertising and for Pinterest to command excellent ad pricing power.
Pinterest is on track to more than double its sales by mid-decade, yet can be purchased for less than 18 times Wall Street's forecast earnings for 2023. That's an incredible deal that can make patient investors millionaires.
Image source: Getty Images.
Fastly
Another tech stock that has more than enough potential to turn a $200,000 investment into $1 million by 2030 (or sooner) is edge cloud computing company Fastly (FSLY 2.87%).
If you think Pinterest has been an unpopular pandemic play over the past year and change, take a gander at Fastly's chart. Shares of the company have tumbled close to 90% from their all-time high. Admittedly, Wall Street and investors were a bit too overzealous with Fastly's growth expectations at its peak. Couple these lofty expectations with the company reporting bigger losses and forecasting slower sales growth in 2022, and you have the recipe for a big pullback.
But just as investors were overzealous early last year, they're likely too pessimistic about Fastly's future now.
Fastly's primary task is to securely expedite the delivery of content to end-users from the edge of the cloud. With more businesses than ever shifting their data into the cloud in the wake of the pandemic, demand for Fastly's services should only grow. Want proof? Despite its shares undergoing a downward spiral in 2021, the company's total customer count rose to 2,804 to end 2021 from less than 2,400 in 2020 (which includes the Signal Sciences acquisition).
Furthermore, the company's dollar-based net expansion rate (DBNER) stood at 121% in the fourth quarter, up from 118% in the sequential third quarter. DBNER is a metric that offers investors insight into how much more existing clients are spending. Since Fastly's content delivery network is based on usage, a 121% DBNER means existing users from Q4 2020 spent 21% more in Q4 2021. That's not a drop in the bucket, especially when you consider the company's high customer retention rate.
What's more, Fastly could find itself as one of the key players in the metaverse. The metaverse is viewed as the next iteration of the internet, which will allow connected users the ability to interact with each other and their surroundings in 3D virtual worlds. Fastly's role will be to reduce latency. In other words, when actions are taken in virtual worlds, Fastly can help ensure there's little or no lag.
With management expected to focus on cost-cutting, expect things to improve dramatically for Fastly beginning this year.
Image source: Getty Images.
PubMatic
The third and final tech stock that could turn a $200,000 investment into a cool $1 million in eight years or less is advertising technology company PubMatic (PUBM 3.02%).
To keep with the theme of this list, PubMatic's shares have been thrashed since hitting their all-time high of nearly $77 in early March of last year. Since then, we've witnessed Wall Street become more mindful of valuations. PubMatic has also been pressured by the aforementioned change to Apple's privacy policy. As an ad-tech company, there's been clear concern that PubMatic's growth rate could slow due to Apple's iOS changes.
But it's my take that these concerns are overblown. In fact, I'm so confident in PubMatic's long-term success that I've made three separate purchases of its shares since the month began.
The key to this company's success is the digitization of advertising. Gone are the days when companies spent the bulk of their marketing trying to reach users in print. The expectation is that global digital ad industry spending will nearly double between 2020 and 2024 to $627 billion.
While this might sound like rapid growth (and it is!), PubMatic has been increasing its sales even faster. Last year, the company's existing clients (i.e., the publishing companies selling their display space) spent 49% more than they did in the previous year. Although I wouldn't count on 49% organic growth becoming the norm, PubMatic shouldn't have any trouble topping 20% organic annual growth for many years to come.
Notably, PubMatic has made waves with its omnichannel video growth. Connected TV ad spend grew by a factor of six in 2021 from the prior-year period.
Something else to keep in mind is that PubMatic's cloud-based infrastructure is relying on machine-learning algorithms to keep pricing transparent and all parties happy. Instead of placing the priciest ad in a display space, PubMatic's programmatic ad solutions are focused on putting the most relevant message in front of users. This keeps advertisers happy over the long run, and it'll help provide better long-term pricing power for publishers, too.
PubMatic can be had for only 24 times Wall Street's forecast earnings for 2023 despite sustaining sales growth of around 25%. That's a screaming bargain.
