[Editor’s note: This story was previously published in April 2018. It has since been updated and republished.]
Some disruptive technologies move fast. Others move too fast.
But just because a technology is moving too fast doesn’t mean that technology won’t become the next big thing. Rather, the opposite is normally true. A disruptive technology moves too fast simply because there is so much pent up demand for it. Thus, unless demand preferences change dramatically, that technology will inevitably morph into the next big thing.
Too fast simply means that the technology is bound to hit some road bumps.
Right now, it seems like a lot of industry-disrupting technologies are moving too fast. Stocks with exposure to those “too fast” technologies will experience some near-term turbulence.
But long-term, these technologies are going to change the way the world operates. And the same stocks that will experience near-term turbulence will also be long-term winners.
Here’s a list of 5 of those “too fast” technologies, and the stocks with big exposure to them.
#1 Autonomous Driving
We’ve all heard about the massive amount of money, time, and effort going into the pursuit of fully autonomous driving. One day, we will inevitably have self-driving cars everywhere, death rates from driving will be significantly lower and traffic headaches will be greatly reduced. This is the future.
But just because autonomous driving is the future, that doesn’t mean the road to the future will be without hiccups. Recently, autonomous driving has turned into a “too fast” technology. Over the past few years incidents like a self-driving car from Tesla Inc (NASDAQ:TSLA) that was involved in a fatal accident in Florida or one from from Uber involved in a fatal accident in Arizona have made them seem riskier.
The fallout of these accidents is not small. Chipmaker and autonomous driving leader NVIDIA Corporation (NASDAQ:NVDA) suspended self-driving tests. Uber was suspended from autonomous vehicle testing in Arizona. There has been a lot of negative press recently about the risks of autonomous driving.
But the fallout isn’t big, either. Most car-makers are carrying on with their autonomous driving tests despite the recent accidents. That is because they are focused on the big picture idea that autonomous driving, at scale, is significantly more efficient and safe than human driving (nearly 1.3 million people die each year in road crashes).
Near term, companies with big exposure to self driving will struggle. The headline names in the field include Tesla, NVIDIA, Alphabet Inc (NASDAQ:GOOG) and Apple Inc (NASDAQ:AAPL). Don’t expect big moves higher in these names anytime soon.
But long term, these stocks will roar higher. Autonomous driving is only a few years away from being a reality at scale.
#2 Data Sharing & Analytics
Security failures have turned Facebook (NASDAQ:FB) into the big bad wolf on Wall Street that investors love to avoid and regulators love to hate.
At the core of the issue is how Facebook uses its massive database of consumer data. But there is nothing wrong with using data to make informed decisions. Facebook is just doing this at scale. And they aren’t alone. All internet companies are doing this, including Twitter (NYSE:TWTR), Snap (NYSE:SNAP), Google, Uber, Airbnb, Amazon (NASDAQ:AMZN), and Apple (yes, even Apple, despite CEO Tim Cook’s comments).
Even non-internet companies are jumping into the data sharing space. Nike Inc (NYSE:NKE) just acquired a data analytics start up, presumably to help them better understand consumer behavior and create products that better align with consumer preferences.
Facebook’s problem is that they had zero transparency with data sharing. As soon as Facebook brings transparency into their processes and allows consumers to see (to a degree) what is being done with their data, all of these problems will go away.
Near-term, stocks with big data exposure won’t be the biggest winners. That includes Facebook, Twitter, Snap, Google, Amazon, Apple, Shopify Inc (NYSE:SHOP), and a ton of others.
But, again, these stocks will be big-time winners in the long term due to their exposure to big data markets. Just like autonomous driving, data is the future.
One of the most powerful themes in the technology world right now is decentralization.
For the past several years, technology markets have consolidated around the select few, namely the FAANNG group (the newest N is Nvidia) . It has worked out well. But it seems that investors are somewhat tired of that consolidation. That is why the cryptocurrency boom happened. Cryptocurrencies are all about decentralization. Indeed, when the crypto boom went mainstream, everyone was talking about how bitcoin was a bubble, but blockchain (the underlying decentralization framework) was the future.
The cryptocurrency and blockchain hype has cooled down. But decentralization themes remain strong. Uber, Airbnb, and GrubHub Inc (NYSE:GRUB) have created billion dollar empires built on these decentralization principles. YouTube, Instagram, and Snap have also built billion dollar empires on those same decentralization principles by turning consumers into creators.
Because the blockchain hype has cooled, stocks with big exposure to decentralization principles may struggle in the near term. That group includes Shopify, Google, GrubHub, Netflix (NASDAQ:NFLX), Facebook, and a bunch of others.
Long term, though, these stocks will roar higher. Processes and systems are increasingly moving towards decentralization. The companies at the forefront of this trend will be big winners in the long term.
The one thing everyone seems to know about retail is that e-commerce is killing traditional commerce.
But that isn’t entirely true. A majority (more than 90%) of all retail sales still happen in the brick-and-mortar format. Malls are reinventing themselves as multi-purpose entertainment destinations with shops alongside restaurants, movie theaters, and gyms. And it’s working. Retailers across the board reported significantly improved comparable sales during the holiday 2017 period.
Yes, e-retail will continue to grow at a much more rapid rate. But there is a reason the world’s pioneering e-commerce companies, Amazon and Alibaba (NYSE:BABA), are making big pushes in offline retail.
As such, companies with a ton of e-retail exposure like Amazon, Alibaba, JD.Com Inc (ADR) (NASDAQ:JD), Shopify, Paypal (NASDAQ:PYPL), and others may be slightly ahead of themselves in the near-term as e-retail growth cools down.
But those stocks will head way higher in the long term for two reasons. First, e-retail will continue to grow at a very healthy rate over the next several years. Two, most of those players are gaining exposure to offline retail, too, and turning into companies with omni-channel retail exposure.
#5 Internet Television
Over the past several years, Netflix has pioneered the era of internet television. When they started on this track, some people laughed and some cried, but most didn’t believe that it would work.
Fast forward a few years, and Netflix is marching towards world domination of the entertainment industry.
The era of internet television is here. Internet television offers consumers enhanced convenience (on-demand and multiple-screen functionality among a seemingly limitless content library) at a lower price point (roughly $10 per month for Netflix versus $100 per month for cable). Because of this, internet television will beat out linear television in the long run.
But this trend has gotten ahead of itself in the near term. Just look at Netflix stock. It’s up about 400% over the past 3 years and 60% so far in 2018 (and it’s only April). Everyone wants a piece of the internet television pie. But this trend needs to cool down.
Expect near-term turbulence in internet television names like Netflix, Apple, Roku (NASDAQ:ROKU), Walt Disney (NYSE:DIS), Google, and AT&T (NYSE:T) (don’t sleep on AT&T’s DirecTV Now, which could more than offset traditional television declines). Longer-term, due to the convenience and price advantages of internet television, these names will head significantly higher.
As of this writing, Luke Lango was long GOOG, AAPL, FB, SHOP, NFLX, BABA, JD, PYPL, and DIS.