Tech is hot again. After falling in 2022 and taking the rest of the market with it, tech is once again popular with investors. The tech-heavy Nasdaq composite is up 37% so far in 2023, about double the broader S&P 500's gain.
Industries will always have cycles, so investors shouldn't get too excited or perturbed by short-term movements. But tech as an industry could be riskier than other stocks, since a lot of it is fueled by unproven or unprofitable technology. Then again, it also provides some of the best opportunities for skyrocketing growth.
If you're investing for retirement, the best way to play it is to stick with proven tech stocks that will have a large upside. And if you have a long time horizon, you should invest in tech stocks that are demonstrating strong performance and have a viable path toward profitability. Amazon (AMZN 3.43%), MercadoLibre (MELI 3.09%), and SoFi Technologies (SOFI 3.69%) are my three recommendations.
1. Amazon: Always upping its game
Amazon has an incredible moat. Actually, it has several that protect its business.
The first is Prime, which is essentially an expensive loyalty program. For $139 a year, Prime members can get almost anything they need delivered for free within a day or two. That's a very difficult proposition for any other company to compete with, and provides Amazon with a wide edge against any other e-commerce company. It's no surprise that Amazon has 37% of the U.S. e-commerce market, and that's not likely to change anytime soon.
But it has done the same thing with Amazon Web Services (AWS), its cloud computing company. It's a completely different business, but Amazon has moved up to the No. 1 spot in this segment as well, with 32% of the market. Here it doesn't have an edge like Prime; it competes on price, technology, and service.
None of this is shielding Amazon from current market conditions. Sales increased 9% over last year in the 2023 first quarter, and AWS sales increased 16%. But those were big slowdowns from prior levels. Operating income rebounded from declines last year in the first quarter, increasing from $3.7 billion to $4.8 billion.
Amazon's most recent splash is in generative artificial intelligence (AI), which gives it a further lead in AWS and sets it up to rebound in a big way when client companies start spending again.
Amazon is positioned to keep growing, and Amazon stock presents an excellent long-term opportunity for patient investors.
2. MercadoLibre: Harnessing a vast opportunity
MercadoLibre is similar to Amazon with its unbeatable e-commerce business that operates in the Latin American market. It has also expanded to new businesses that it dominates, although they're in the fintech sector.
MercadoLibre is several years behind Amazon, which means it's still posting exceptionally high growth and capturing more market share. This is even more so with its newer segments.
In the 2023 first quarter, revenue increased more than 58% year over year. That's on top of triple-digit growth at the height of the pandemic. Gross merchandise volume increased 43%, while total payment volume, a metric for its fintech segment, increased 96%. In its three largest regions (Brazil, Mexico, and Argentina), items sold accelerated from last year.
All of this growth is leading to improved profitability. Operating margin has been steadily widening, and it was 11.2% in the first quarter, up from 6.2% last year.
Digital payments on the platform (which means payments used on the e-commerce site) account for about two-thirds of the total. But off-platform total payments volume is still growing at triple digits. This is a huge opportunity as it expands MercadoLibre's digital payments business to almost unlimited sectors.
The company also has a credit business and an advertising business that are posting robust performance. There is just so much potential throughout the MercadoLibre empire, and it could be a game-changing stock for investors who hold it until retirement.
3. SoFi: Gaining customer loyalty
SoFi is the riskier stock that I'm presenting here. It's risky because it's young and unprofitable; but it's made incredible progress in both developing its business and working toward profits, and I'm finally ready to be excited about it.
SoFi is an online bank and financial services provider. Its roots are in student loans, but it has expanded to a large suite of services that includes all kinds of loans, insurance, investing, and travel services. It boxes its services into three segments: lending, technology platform, and financial services. It operates what it calls its product suite and unique Financial Services Productivity Loop, which generates cross-sells through members, leading to higher sales and more efficiency.
But it recruits new members at a high rate as well. It added 433,000 new members in the first quarter for a total of 5.7 million, or 46% higher than last year.
The new products have protected it since loans have been paused, and as student loan forgiveness continues to be debated, it could completely change SoFi's model. So far, growth has been robust despite this challenge.
Revenue increased 43% year over year in the 2023 first quarter, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 772% to $76 million. It's still posting a net loss, but at $34 million in the first quarter, it was better than $110 million last year.
SoFi is resonating with young Americans and it has a strong pipeline of new product adoptions within its new member signups. It has a long growth runway, and it could be a standout stock to add to your retirement portfolio.
