[Editor’s Note: This story was previously published in October 2018. It has since been updated and republished.]
Data is the future, and that means big-data stocks are building the future.
There really isn’t any other way of looking at it. The mainstream emergence of the Internet of Things (IoT), coupled with the digitization of essentially all processes, has caused a surge in the amount of data running around the world. All that data is being used by small and large companies alike to optimize operations. This includes everything from gleaning insights from the data so as to make the best product to leverage that data to deliver advertising solutions to the right market.
From this perspective, data is the new currency. And the value of that currency is only growing as the data revolution gains steam.
With that in mind, here is a list of four big-data stocks that have broad exposure to the data revolution, and should be big winners in a multiyear window.
Alphabet (GOOG, GOOGL)
The first company on this list is probably the most underrated big data stock in the world.
As the world’s premier digital search engine that processes billions of searches every day, Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has the largest consumer data-set in the world. Throw in all the data Google gathers from Google Chrome, YouTube and its smart home products, and the competition isn’t even close.
And this enormous data-set is presently dramatically undervalued.
GOOG stock trades at just 24 times forward earnings. That really isn’t that big of a multiple, especially when you consider just how much firepower the company has in Big Data. As the company with the largest consumer data-set in the world, Google is set-up to deliver the world’s most robust solutions in AI, automation and personalization.
This is already happening. Google Duplex — Google’s AI system that sounds like a human and can respond impressively well in real-time conversation — is miles above the competition on the AI front. Google Home is the market leader in a smart home category that Amazon (NASDAQ:AMZN) initially dominated. And Waymo, Google’s self-driving unit, is the leader in automated driving, and will likely launch multiple self-driving ride-hailing services soon.
All those markets (AI, smart home and self-driving) are presently in their infancy. They have huge growth potential over the next several years. Google is at the forefront of each of those markets, and thanks to its Big Data advantage, promises to be a big player in each of the those markets over the next several years.
That means Google has huge growth potential over the next several years. Those huge growth prospects simply aren’t priced in at 24 times forward earnings. As such, GOOG stock looks likes a great multiyear investment among big-data stocks.
If Google is number one in the Big Data world, Facebook (NADSAQ:FB) is number two.
Although no one really comes close to rivaling Google in terms of consumer data-set size, Facebook is no slouch. Considering the company collects data on an estimated 2.7 billion users each month, Facebook promises to have the second-biggest consumer data-set in the world into the foreseeable future.
Much like GOOG, FB stock is hugely undervalued considering the firepower this massive data-set gives the company over the next several years.
Unlike Google, Facebook is focusing the use-case of the data more directly at targeted advertising. And it’s working. Facebook, despite being the second-largest digital advertising player in the world, grew advertising revenues by 30% last quarter.
That growth won’t slow anytime soon. Instagram’s revenues were just $4 billion in 2017, which is rather anemic for a billion users, so the Instagram ad ramp will last for a lot longer. Meanwhile, Messenger and WhatsApp are just starting their advertising ramps, and those should last for a lot longer.
Plus, Facebook is making a big plunge into the smart home market. Just look at Google to see why Facebook could be a big winner in this space. Google leveraged its massive consumer-data set to create an above-average smart home product. Facebook should be able to do the same, considering the company has a consumer data-set that is second only to Google.
All together, Facebook has huge growth potential over the next several years thanks to its robust data-set. But after a massive pullback in the last three months, FB stock trades at just 23 times forward earnings. That is an anemic multiple for a company with this much growth potential. Consequently, Facebook is one of the best big-data stocks to buy here and now.
There are lots of companies out there partaking in the Big Data revolution. From cloud data-center operators to automated tech companies to targeted advertisers, everyone wants a piece of the data revolution pie.
And almost all of them use products from Nvidia (NASDAQ:NVDA) to do so.
NVDA makes the stuff that powers the data revolution. If companies like Facebook and Google are the drivers, then NVDA is the car. Granted, there are lots of cars out there which Big Data companies could use. But the best car is NVDA, and that is why this company continues to crush it in high-end computing markets like data-centers, AI and automation.
Owing to its nature as a supplier of the parts that fuel the data revolution, NVDA has broad exposure to all things Big Data. If cloud data-centers take off, NVDA takes off, too. By the same logic, if self-driving or automated technology takes off, Nvidia will profit.
This diverse exposure somewhat mitigates the risk of betting on a single part of the Big Data revolution materializing. Instead, a bet on NVDA is a bet on the whole data revolution.
Meanwhile, valuation isn’t that big of a concern for this company. NVDA stock trades at 21 times forward earnings. That really isn’t all that big of a multiple considering the company is a pure play on the whole data revolution, and it is absolutely crushing its competition. As such, NVDA stock looks like one of the best big-data stocks to own for the next several years.
A discussion of big data stocks would be incomplete without including Salesforce (NYSE:CRM).
Salesforce is truly at the heart of the cloud and data revolutions. CRM leverages data and analytics to deliver robust cloud solutions to enterprises that want data-driven insights on their customers. In this sense, the company takes data and turns it into insights via cloud solutions. That promises to be one of the most valuable processes in a world defined by Big Data.
Consequently, CRM promises to be immersed in a big growth industry over the next several years. More than that, CRM promises to be the leader in that big-growth industry over the next several years.
CRM has faced a lot of competition over the past several years. But none of that competition has been sufficient to knock CRM off course. Despite rising competitive threats and tougher laps, revenue growth at Salesforce has hardly slowed over the past several years. Back in 2014, revenues grew by 33%. In fiscal 2018, revenues grew by 25%. Last quarter, they rose by 26%. And this year, revenues are expected to rise by about 23%.
In other words, revenue growth has remained resilient above 20%. That is impressive, and speaks to the strength of CRM’s core offerings.
This strength should last. So should strength throughout the whole Big Data market. As such, CRM stock should head higher in a multiyear window as the value of data globally explodes higher.
Valuation today is a slight concern. A 57-times forward multiple for CRM stock is big, no matter what type of stock you are talking about. I wouldn’t be surprised to see choppy trading in the near future for this big-data stock.
But in a longer-term window, the robust secular growth narrative supporting CRM will allow it to grow into its valuation and ultimately head higher.
As of this writing, Luke Lango was long GOOG, AMZN and FB.