The stock market is off to a solid start of 2024, with the S&P 500 (^GSPC +0.58%) index gaining more than 5% yea to date. Software giants are leading the charge thanks to the continued boom in artificial intelligence (AI) tools. But not every big winner is a household name, and some of the best buy-and-hold investments in today's tech sector are not so familiar.
Three Motley Fool contributors with deep tech expertise sat down to share their best-kept secrets in the current market. Read on to see why they recommend adding shares of AI-driven automation expert UiPath (PATH 5.39%), payment-processing specialist Shift4 Payments (FOUR +0.22%), or quantum computing innovator IonQ (IONQ 1.20%) to your portfolio right about now.
Automating the future with UiPath Studio
Anders Bylund (UiPath): Robotic process automation (RPA) may not sound terribly exciting, but it's a rapidly growing sector with a heavy dose of AI expertise. Claiming a slice of this important market early on can set a company up for lucrative success in the long run.
That's what UiPath is all about. The company provides a platform for automating business processes, putting the concepts of RPA to real-world use. UiPath Studio is their main product, offering an integrated development environment for building AI-controlled software robots to automate tasks and workflows.
This platform is known for its easy-to-use graphical user interface, wide range of available automation endpoints, and quick development process. A client can go from finding an issue in need of automation to flipping the production-grade switch in a matter of months, thanks to the intuitive control system and a deep portfolio of pre-made templates for task automation.
NYSE: PATH
Key Data Points
This company is not the only name in town, but UiPath Studio is a proven winner. For instance, software giant Microsoft (MSFT 0.63%) has its own RPA tool, called Power Automate. Yet, the company often turns to UiPath when a client needs an enterprise-class automation tool.
"Microsoft has named us their preferred automation partner," said UiPath CFO Ashim Gupta at a recent industry conference. "You don't see Microsoft talking about automating claims processing, automating customs forms applications, automating invoice-to-cash. You don't see that with them. And that is where we shine and they know we shine."
That's a strong vote of confidence from one of the world's most competent and powerful software developers. When mighty Microsoft can't easily copy or beat what you're doing with a software tool, you're doing something incredibly right.
The company is also in the shareholder-friendly habit of beating analyst estimates at every turn, whether in a strong economy or an inflation crisis. If you're looking for a robust all-weather AI investment, UiPath looks like a great option right now.
PATH Revenue (TTM) data by YCharts
This quantum computing stock could be ready to take off into the stratosphere
Billy Duberstein (IonQ): Everyone's talking about artificial intelligence today. But what if AI itself could become disrupted by a new form of computing?
That's quantum computing, a process whereby stimulating an atomic ion, a quantum "qbit" can process exponentially more data than a typical electronic transistor, which can only store data in binary form of "1" or "0." So even though Nvidia (NVDA +2.33%), for instance, packs 80 billion transistors onto its H100 GPU for AI, each of those transistors is still in the form of "1" or "0."
That means quantum computing, if done right, could solve problems that even the largest AI supercomputers couldn't.
The reason why a quantum revolution hasn't happened, of course, is that the technology is super-hard to get right. But it's getting closer every day, and leading the charge is industry leader IonQ. With a market cap of just over $2 billion, IonQ is the largest publicly traded pure-play quantum computing company.
There are several different approaches to the technology of quantum computing, and IonQ has chosen what appears to be a more direct route to commercialization via something called an atomic ion trap method. In that process, an ion is suspended in an electromagnetic field, and hit with various lasers to stimulate the ion and then also measure the various probabilities of quantum states. Atomic ions are natural and not fabricated as some other materials other quantum players are attempting to use. And trapped ions can process data at room temperature, whereas other approaches require temperatures near absolute zero.
NYSE: IONQ
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IonQ's approach seems to be gaining traction, as the company just announced it hit a technological milestone of hitting #AQ 35, or a 35 algorithmic qbit system, one year ahead of schedule. That's important because a working #AQ 35 system is thought by management to be the threshold whereby quantum computing achieves computing superiority over quantum simulations from traditional computers, for certain applications.
In addition, IonQ just completed its buildout of a quantum manufacturing center and second quantum data center outside of Seattle, where its quantum system can be accessed by all major clouds.
With IonQ's technology having hit a threshold where it may become commercially preferable to traditional computing for some applications, as well as its strong partnerships with major cloud computing platforms, look for 2024 to be a year in which IonQ potentially goes from experimental start-up to a genuine money-maker.
It's possible a quantum ChatGPT-like moment could be on the horizon in the next few years.
One tiny digital payments provider about to run higher?
Nicholas Rossolillo (Shift4 Payments): One of the stocks I'm looking forward to hearing from most this earnings season is Shift4 Payments, a small digital payments provider that got its start providing solutions to the hospitality industry. It's been quickly expanding up-market to big sports stadiums and entertainment venues, and also just made a small acquisition to jump-start its expansion into Europe.
Intense competition has been a highlight in the digital payments space in the last year, with old industry giant PayPal Holdings (PYPL 0.46%) taking the brunt of the market's souring on this industry. Consolidation is likely needed, but big players in the space apparently think there's still lots of value -- if the recent announcement that credit company Capital One Financial (COF 1.18%) will try to acquire credit and payments network provider Discover Financial Services (DFS +0.00%) is any indication.
Despite headwinds, though, Shift4 has been a solid growth story. Through the first nine months of 2023 (the Q4 update will be released on Feb. 27), revenue increased 28% year-over-year. Even better than that, though, Shift4 could be at the cusp of reaching some serious operating leverage as it expands. GAAP net income through the first nine months of the year jumped 58%, and free cash flow (FCF) surged 149% to $242 million.
NYSE: FOUR
Key Data Points
Like most businesses, Shift4 isn't flawless. One area to keep an eye on is the balance sheet, which had $692 million in cash and short-term investments offset by debt of $1.75 billion -- the result of a number of acquisitions over the years.
Nevertheless, I've added to a small position in Shift4 stock in recent months on optimism the small fintech company's growth will extend into 2024 and beyond. Shares could be mighty cheap for the long-term too, at 46 times trailing 12-month earnings per share and just 20 times FCF. I'm keen on knowing what management sees coming its way this new year and I plan on buying more in March if the growth story keeps resonating.
