Your biggest risk, and your greatest winners, will always occur at the leading edge of change. This remains as true in 2019 as it ever has, but the definition of “leading edge” changes with the times. The most prescient of stock market predictions in 2019 know this.
Devices like the Apple (NASDAQ:AAPL) iPhone are already commodities, just 10 years on. Cloud infrastructure has also become commoditized in less than a decade.
Risk is highest where leadership remains uncertain. The same is true with price — investors gladly pay high multiples of sales and forego earnings to speculate on the next big market.
During this past decade, for instance, that meant betting on Amazon (NASDAQ:AMZN) long before it saw a profit. Putting your money into the following big trends could net your monster profits, but you could also find the next Theranos.
Today, big cloud profits have moved “up the stack,” to cloud platforms like Red Hat (NYSE:RHT) (now being acquired by International Business Machines (NYSE:IBM) and, especially, cloud applications, which scale quickly, are updated instantly and replace a host of older datacenter technologies.
Adobe (NASDAQ:ADBE), Salesforce (NASDAQ:CRM) and Workday (NASDAQ:WDAY) represented the leading edge of this cloud application space, replacing datacenters with subscription software services, generating huge profits over the last several years.
In 2018, Square (NASDAQ:SQ) and Paypal (NASDAQ:PYPL) succeeded by marrying enterprise services like transaction processing to other business services, from banking to accounting, producing a new “fintech” boom that is really a variation on a theme.
But you need to pay careful attention. Enormous investment is required to stay ahead in a new game, and leadership can change in a single quarter. Bad actors force this change, as they only need to break into systems once, while security firms must protect every door, window and virtual air vent.
Clouds were designed to use cheap, open source software and commodity hardware, but they’re now going through their first upgrade cycle.
The cycle is based on a need for greater speed to serve artificial intelligence applications that work without conscious human interaction. Graphics chips from Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD), and memory chips from Micron Technology (NASDAQ:MU) are all part of the cycle. So are faster “5G” wireless links from Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO).
The artificial intelligence space will be seen in 2019 first in factory automation stocks like PTC (NASDAQ:PTC), which can allow redesigned factories that adjust themselves and call for repairs before things break.
This reflects a consumer voice interface market led by Amazon’s Alexa, Apple’s Siri and Alphabet’s (NASDAQ:GOOGL) Google Assistant, all seeking allies among applications that consumers will pay for.
The real bleeding edge for 2019 isn’t in computing at all, but in biology, where DNA is being treated as a computer language and the pace of discovery is accelerating.
This is where huge amounts of risk capital are needed, but where the greatest uncertainty also lies. No one wants to be the next Theranos, whose claims could not be substantiated. But unproven technologies are coming to the public market anyway, like Moderna Therapeutics (NASDAQ:MRNA), which came public in November. Its use of Messenger RNA in designing vaccines may be the “next big thing,” or the next big bust.
There are other newly public companies in the space, like Translate Bio (NASDAQ:TBIO), and companies in the same space are expected to go public in the coming year, with names like CureVac and Ethris.
Small investors will be jostling for space against private equity and big drug companies who want to find the next Apple. Most will find the next Cromemco, Kaypro or Altos.
Those of you over 50 will remember those last three names as the leading-edge PC makers from 40 years ago, all of which were long ago left in the dust by history. Just because something is the “next big thing” is no guarantee it will deliver you a profit.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN and AAPL.