One of the biggest stories since late 2021 has been rising inflation readings around the globe. For the first time in decades, central bankers and governments are worried about spiraling inflation that could lead to a stagnant economic period like the 1970s. In the U.S., consumer prices are growing by 6.5% year over year, which is actually down slightly from a few months ago but still higher than any year of the last 25 years except 2022.
Some economists think the worst of the inflation scare is behind us, but with so many variables in our complex economy affecting consumer prices, it is tough to have any confidence in these forward estimates.
Inflation is unpredictable, which is why the best investors buy businesses that can succeed in all economic environments. Here are two technology stocks that will do well regardless of what the current inflation reading is.
1. Autodesk's products have embedded pricing power
My first pick is Autodesk (ADSK 2.79%), one of the largest software companies in the world. Autodesk sells software products to a variety of industries, including architecture, engineering, construction, manufacturing, and media. With the increased digitization of all these end markets, the company has been able to put up impressive revenue and earnings growth since going public a few decades ago.
In fact, even while going through a difficult transition from one-time software purchases to a recurring subscription model, Autodesk's revenue is up rouhgly 112% over the past 10 years with free cash flow per share up an impressive 288%.
ADSK Revenue (TTM) data by YCharts
Autodesk will succeed with high or low inflation for two reasons. First, it has close to zero input costs, seeing as its products are just software programs. This will keep it insulated from volatile energy, commodity, and food prices. Second, it has a lot of pricing power that will allow it to steadily raise prices over the next decade-plus.
For example, let's look at Revit, Autodesk's 3D design and collaboration program for architects. A Revit subscription costs an architectural firm $2,675 per year per unique user but can save architects dozens of hours with its automation, collaboration, and 3D visualization tools. An entry-level architect's salary is roughly $40-$50 an hour before considering office expenses and other perks. If Revit can save an architect 100 hours of time each year, that is $5,000 in value for their employer, making the cost-to-value equation well worth it at Revit's current price point.
This type of dynamic is at play across the majority of Autodesk's product suite, giving it plenty of room to raise prices for the foreseeable future and should be able to succeed no matter what inflation is.
2. Remitly is modernizing international payments
Remitly (RELY -0.48%) is a financial technology disruptor targeting the international transfers market. With its mobile application and modern technological infrastructure, the start-up has been able to take market share from the legacy players that charge high fees to people looking to send money across national borders.
Last quarter, Remitly hit 3.8 million active customers, up 49% year over year. Revenue grew slightly slower at 40% year over year to $169.3 million, while the company remains unprofitable as it invests heavily in marketing and product development in order to keep growing its customer base. Investors should be cheering this unprofitability at the moment because of the huge potential runway for growth in international money transfers.
The global remittance market was estimated to be $700 billion in 2020 and is expected to reach over $1 trillion in annual payment volume by 2030. Remitly only does $7.5 billion in quarterly payment volume at the moment, and with few other scaled disruptors targeting this market, it should be able to keep stealing market share from the legacy providers with high fees.
So what help protect Remitly from inflationary pressures? The company's business model is based on taking a small fee on all the volume flowing through its service. If inflation is high, that generally means more currency is flowing through the international economy each year, which means the nominal value of the currency flowing through Remitly's platform should rise, all else equal. With an impressive track record of growth and a natural hedge against high inflation, Remitly looks like a great stock to own through all macroeconomic environments.
