The popular acronym FAANG represents some of the most disruptive and profitable stocks over the past decade:
- Facebook, which has rebranded itself as Meta Platforms;
- Apple;
- Amazon;
- Netflix;
- Google, which changed its name to Alphabet.
Each of these household names has been a game-changer, and they've become synonymous with the industries they dominate. As a result, each company has delivered multibagger gains over the past decade, increasing in value by between 517% and 906%.
Image source: Getty Images.
Late last year, inspired by the success of the FAANG stocks, I began looking for the next generation of potential winners. To be clear, I still believe in the ongoing potential of the FAANG stocks, but given that they now have some of the largest market caps out there, I thought it was time to look to the next generation of market-beating stocks. With that, the GHOST stocks were born.
Furthermore, recent developments in the field of artificial intelligence (AI) have dominated the headlines, and this technology has the potential to deliver widespread productivity gains.
With that as a backdrop, let's review the performance of the stocks that make up my GHOST acronym, which have averaged returns of 49% so far this year, compared to the 11% gains of the S&P 500. And all of these companies have intriguing connections to AI that could help boost their returns for years to come.
Global-e Online -- up 83% year to date
E-commerce growth has hit a slow patch in recent years, but the death of online retail has been greatly exaggerated. Online merchants have shifted gears and are looking for ways to gain an advantage over the competition. Many see cross-border sales as the next frontier, and that's where Global-e Online (GLBE +1.14%) comes in.
The company makes light work of the complexities associated with international online sales, including customs and duties, inter-country regulatory compliance, currency exchange, foreign languages, and local payment methods. Global-e handles these obstacles and many more, allowing merchants to go about the business of selling their goods and services to a worldwide audience.
NASDAQ: GLBE
Key Data Points
Global-e's results put to rest the notion that e-commerce has seen better days. In the second quarter, revenue grew by 53% year over year, fueled by gross merchandise volume that jumped by 54%. The company continues to generate losses as it scales its platform, but it has been cash flow positive for several quarters, which suggests the transition to profitability is merely a matter of time.
Then there's the AI connection. Global-e has long used machine learning and AI models to automate large-scale recurring tasks. These include maintaining the classification of products in its catalogs and simplifying duties and taxes. The company is also working to deploy additional AI tools to increase operational efficiency and improve service levels, with many additional opportunities yet to come.
Merchants are venturing beyond their own borders in order to expand their addressable market and Global-e Online has the tools to help them achieve their worldwide market ambitions.
HubSpot -- up 65% year to date
HubSpot (HUBS 0.61%) has evolved from its humble beginnings in inbound marketing, expanding its offerings into a full suite of customer relationship management (CRM) tools. The company offers a host of interconnected products that simplify tasks in marketing, sales, service, content management, and operations.
This collection of tools helps underpin HubSpot's solid financial results. In the second quarter, revenue grew 25% year over year, while adjusted earnings per share tripled.
CEO Yamini Rangan recently laid out the AI connection. "HubSpot is powerful, yet easy to use ... [an] all-in-one CRM platform powered by AI," noting that it's integrating generative AI across its suite of tools. She goes on to say HubSpot is differentiated by its "unique data and broad distribution."
The company has an advantage over other providers: "HubSpot CRM data is unified and cohesive," Rangan said, "making it easier for AI to ingest and drive relevance." Finally, HubSpot customers "don't have to become AI experts to reap the transformational benefits" available from its platform.
The ability to manage customer relationships has never been more critical and the ability to deploy AI to improve productivity will soon be table stakes for business. HubSpot has both those requirements well and truly covered.
Okta -- up 14% year to date
Okta (OKTA 2.35%) may not be a household name, but the company has quickly emerged as a leading provider of independent identity verification and access management tools. Its cloud-native platform, employing the zero-trust model, acts as a secure gateway for employees, customers, and contractors, ensuring only authorized personnel gain access to data and platforms, and only to those they should have access to. This helps prevent many of the intrusions, hacks, and data breaches that have become common in our digital world.
Business is brisk. In its fiscal 2024 second quarter (which ended July 31), revenue grew by 23% year-over-year. While Okta isn't yet profitable, it generates strong operating and free cash flows. Okta's total customer base grew by 12%, but the number of clients spending $100,000 or more in annual contract value grew by 19%, fueled in part by the company's dollar-based net retention rate of 115%.
Okta has long used AI to detect and mitigate fraud, but just this week announced plans to take that to the next level. At its Oktane user conference, the company announced the debut of Okta AI, a set of capabilities woven into the fabric of its service offerings. Okta's Identity Threat Protection offers real-time detection and response and integrates with popular cybersecurity offerings to continuously improve identity fraud protection. Passkey helps enterprise customers adopt phishing-resistant password-less authentication.
Okta continues to expand its product and service offerings while staking its claim in the AI revolution.
Snowflake -- Up 6% year to date
"Data is the new oil," or so the saying goes. However, unless that data can be aggregated and analyzed, it's essentially worthless. The ability to pull data from a variety of disparate sources -- including third-party applications and cloud infrastructure platforms -- into a single dashboard and extract useful intelligence from it is the holy grail of business analytics. Snowflake (SNOW 1.14%) makes the quest for that grail far easier.
Beyond just storing business applications and data, Snowflake provides systems that gather, store, and analyze information, providing organizations with meaningful intelligence and actionable data.
In its fiscal 2024 second quarter (which ended July 31), revenue grew 36% year over year, fueled by product revenue that grew 37%. Perhaps as importantly, Snowflake's remaining performance obligation (contracted future revenue that hasn't yet been recognized) jumped by 30%, indicating that its growth spurt will continue. Like several other GHOST stocks, Snowflake isn't yet profitable, but it does generate strong operating and free cash flow, suggesting it's just a matter of time before it generates meaningful profits.
Snowflake has a long history of deploying machine learning algorithms. It has recently added the power of generative AI functionality to the mix, which can help users "discover precisely the right data point, data asset, or data insight, making it possible to maximize the value of their data."
Data by YCharts.
The Trade Desk -- Up 77% year to date
There's a famous quote in advertising circles, widely attributed to 19th-century merchant John Wanamaker: "Half the money I spend on advertising is wasted; the trouble is, I don't know which half." Programmatic advertising is seen as a big step toward answering that question, which is part of the reason the ad business is shifting toward it. The technology uses high-speed computers and sophisticated algorithms to place the right ads in front of the right consumers at the right times -- and nobody does programmatic advertising better than The Trade Desk (TTD 2.82%).
The company successfully carved out a niche for itself by working with ad agencies rather than against them, and offering transparent pricing in an industry that is often opaque.
Even as other advertising businesses have suffered from the recent macroeconomic headwinds, The Trade Desk has thrived. Its revenues grew 23% year over year in the second quarter. Furthermore, amid the worst downturn in marketing in more than a decade, The Trade Desk "gained more market share than in any other period in our company's history," according to CEO Jeff Green.
It's also worth noting that The Trade Desk integrated AI into its platform in 2018 "before it was trendy," according to Green. He notes that AI is "always providing improvements," something he expects will continue.
