A few months ago, I began prodding around the idea of, “What are the future FAANG stocks?” We’ve seen Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and other tech stocks swell from modest winners to worldwide behemoths.
These stocks went from $100 billion to $1 trillion in market capitalization.
So many people talk about what it would be like if we had bought Apple in the 1980s or Amazon in 1999. While anyone who did and was able to hold on until now is ridiculously rich, they also sat through a ton of volatility.
Further, investors could have waited until after Apple’s iPhone moment or Amazon’s clear dominance of e-commerce and still made a 10x or more return on their investment. Don’t believe me?
Apple is up over 1,000% over the past decade, while Amazon is up 1,760%. Over just the last five years — when it was absurdly clear these two were established leaders — Apple and Amazon are up 463% and 442%, respectively.
That led me to ponder, what are the next tech stocks that could become new FAANG leaders? Specifically, I am looking for companies in the $50 billion to $300 billion market cap range that can go to $400 billion to $1 trillion or more.
It’s an admittedly wide range, but who cares — these winners are right under our noses. Let’s look at seven tech stocks:
- PayPal (NASDAQ:PYPL)
- Salesforce (NYSE:CRM)
- Nvidia (NASDAQ:NVDA)
- Advanced Micro Devices (NASDAQ:AMD)
- Roku (NASDAQ:ROKU)
- Shopify (NYSE:SHOP)
- Adobe Systems (NASDAQ:ADBE)
Tech Stocks to Buy for Future Gains: PayPal (PYPL)
Current Market Cap: $295 billion
Many investors have continued to underestimate PayPal. When it comes to FAANG tech stocks in their younger years, that seems to be a staple observation of them as well.
However, PayPal has found a way to become a payment juggernaut. While sending money to friends and family is free and convenient, that’s simply one part of the ecosystem.
The company also makes a sliver of sales when involving another business or merchant. It’s become a safe, trusted and convenient way for businesses to sell online or to make subscriptions a piece of cake.
PayPal’s acquisition of Venmo and Honey have only added to those layers of engagement, while e-commerce will continue to be the main catalyst behind its growth. For those looking at tech stocks, the power and trend of e-commerce doesn’t need to be explained.
Lastly, PayPal’s now in the cryptocurrency game, allowing customers to buy and sell Bitcoin, Bitcoin Cash, Etherium and Litecoin. Maybe PayPal won’t be able to collect its current “fee” — read: commission — on these transactions forever, based on how stock commissions vanished almost overnight in the brokerage industry. However, for now it should act as an additional growth catalyst.
Bonus: At a $100 billion market cap, Square (NYSE:SQ) could also be a consideration as a member of new FAANG tech stocks in this respect.
Current Market Cap: $206 billion.
It should go without saying that given the massive gains the stock market has registered over the past nine months, the ideal scenario would be a sizable correction for several of the stocks on this list. However, that doesn’t apply to all of them.
Take Salesforce for example.
This company keeps on printing money as revenue continues to chug higher. For all the doubt that Salesforce has endured over the years, it has done quite well. It doesn’t seem like management plans on stopping, either. For instance, management is looking to generate $60 billion in revenue by 2034.
As we are talking about pullbacks, Salesforce is a great example. At the recent low, shares were 25% off the highs. That seems like a great opportunity for a company that continually sports 20%-plus revenue growth.
Current Market Cap: $335 billion
Admittedly a bit larger than what we were looking for, Nvidia needs to be included on this list. Almost every major technological trend is growing in demand.
More internet traffic is creating strain in the cloud, increasing demand for edge-cloud computing. More data is creating more need for datacenters. Increasing self-driving vehicle capabilities demand more computing power. Better computers demand better graphics.
The list goes on and on and Nvidia is there at every turn.
The company’s products cater to multiple end markets with impressive secular growth. That’s why, despite the pandemic, Nvidia saw such an extreme acceleration in both earnings and revenue.
Its savvy M&A strategy has allowed it to add high-quality names like Mellanox at reasonable valuations. Now Nvidia is going after Arm, a massive $40 billion deal. Nvidia is already nearing an unstoppable state, but with Arm it would be a juggernaut.
From a pure antitrust perspective, Nvidia should be fine. However, this “juggernaut” position might cause some hiccups. Either way, this is a high-quality name that will only grow in size over time.
Advanced Micro Devices (AMD)
Current Market Cap: $111.5 billion
For Nvidia’s smaller sibling, we have Advanced Micro Devices. At about one-third the size, AMD has quickly climbed the ladder while drastically improving its financials.
CEO Lisa Su has orchestrated one of the most impressive comeback stories in the stock market. Once left for dead, AMD was trading firmly below the $2 mark in 2016. Now sporting a 52-week high of $99-and-change, the leadership has been stellar.
Like Nvidia, AMD is situated in multiple secular growth themes as rising demand in technology results in rising demand for AMD. Also like Nvidia, AMD saw a massive rise in revenue and profit during the pandemic.
In one last final comparison to Nvidia, AMD is also working to close a large acquisition. In October, the company agreed to acquire Xilinx for $35 billion.
While it would require years worth of more growth, it’s not hard to imagine AMD growing to the size of Nvidia ($300 billion). Eventually clearing this level could put it on the lower end of the FAANG status in terms of its size.
Current Market Cap: $53 billion
Roku is a tough one, because it’s certainly the smallest name on this list (by a lot) and it just went on a massive rally. Shares are up 90% over the past three months, as Roku has climbed from a market cap of just $28 billion to where it is today.
Additionally, investors just don’t understand this company. They still think it’s going head-to-head with Amazon with its stick players. While that’s kind of true, the story behind Roku isn’t the hardware — it’s the platform.
Roku doesn’t care if it’s making money on the hardware. Instead, its focus is on the platform, where it collects fees from content providers and on ad revenue from its free Roku channel. In that respect, growth continues to explode.
Analysts expect roughly 50% revenue growth this year, followed by 40% growth in 2021 and 36% growth in 2022. Respectfully, I believe that may be conservative. Bulls will acknowledge that a pullback may be in order (and a potentially large one at that). However, I don’t think the top is in for Roku.
For AMD I mentioned the “lower end of the FAANG status,” which would be Netflix (NASDAQ:NFLX). Currently, that’s a $250 billion market cap and remember, NFLX is at a new high.
I could see a scenario where Roku pulls back 20% to 25% — giving it a roughly $40 billion market cap — and ultimately roaring on to a $200-plus billion entity.
Current Market Cap: $145 billion
There is one problem with Shopify and several other names on this list: The rallies.
While the massive rallies great for long-term investors, it makes the stocks susceptible to large pullbacks as well. If and when we get those declines, that’s investors’ opportunity to pounce.
For Shopify, the bullish reasoning is multifold. First, Shopify is riding a much large trend — e-commerce — and therefore will continue to benefit from robust growth. When the coronavirus hit, sales were not negatively impacted. Instead, merchants flocked to its platform, driving Shopify’s revenue higher.
Second, it’s building out the anti-Amazon business platform — giving merchants big and small power and control of the customer experience. Now the reward here is massive, as Shopify builds out multiple business segments likes shipping, credit, Shopify Pay and others.
However, the risk is present as well. That is, can these companies that crave independence from Amazon delivery quality experiences for the customer?
In the end, businesses and merchants are at least willing to try. In December 2019 I said investors could buy Shopify despite its lofty valuation. My argument centered on its valuation, saying this name could go from a $40 billion market cap to a $100 to $120 billion market cap in a decade.
It was not obvious that the more than tripling in its value would take place in just a few months. In the long, long run, it’s not hard to imagine this name being significantly higher.
Adobe Systems (ADBE)
Current market cap: $228 billion
Last but not certainly not least is Adobe. This company does a lot more than just Flash or Photoshop. It’s become a mainstay in e-commerce while also becoming a beacon in the graphics, digital and creative landscape. Find me a freelance graphic designer who’s not using Adobe.
The stock has quietly racked up enormous gains as well. Adobe is up 140% over the past three years and 430% over the past five years. Over the last decade, the stock has rallied more than 1,300%, as its market cap was around $16 billion just 10 years ago.
That’s some impressive action and Adobe doesn’t show many signs of letting up. Analysts expect double-digit earnings and revenue growth this year and next year, while the company gross margins remain solidly above 85%.
While its top-line margins have been steady, its bottom-line profit margins have been soaring. Adobe is quickly yet quietly becoming a technology juggernaut right in front of us.
Like some others on this list, the stock has been consolidating nicely over the past six months or so. Let’s see if this name can resolve to the upside.
On the date of publication, Bret Kenwell held a long position in AAPL, ROKU, CRM and NVDA.