I’ve talked a lot in my Smart Investing newsletter about the progression of technology, how it’s affecting and enhancing both the economy and our everyday lives. Today, I want to jump back into this topic, especially as news broke that Facebook (FB) has officially passed General Electric (GE) in market value.
Facebook has been around for a little over a decade now, a time frame that pales in comparison to GE’s legacy, which stretches all the way back to Thomas Edison and the first light bulb in the late 1800s.
These days, industrial giants like GE have taken one of three paths: They’ve evolved, tapered off or disappeared entirely. As they shuffle out, tech companies like Apple (AAPL) and Alphabet (GOOG, GOOGL) shuffle in.
Exxon Mobil (XOM) and Berkshire Hathaway (
BRK.A, BRK.B) are now the only industrial blue chips left in the U.S. with a market cap greater than $300 billion.
FB Stock: Leading the Third Industrial Revolution
With a stock that has gained nearly 200% in its three years on the market, Facebook has become the harbinger of this new digital era that companies like IBM (IBM) and Cisco Systems (CSCO) kicked into high gear years ago.
FB is expected to grow 12% in the next year, while GE may only see a gain of 5% in that same period — reflecting an obvious shift in the cash flow of the American economy.
I think it’s clear that we’re in the midst of what I like to call the “Third Industrial Revolution,” and there’s no turning back now. For investors and companies alike, it’s time to adapt or die — which is exactly what GE is trying to do, assuming you’ve noticed its latest wave of advertising. It’s also rebranded itself as a “digital industrial” company on its website.
Don’t get me wrong — I’m not saying that companies like GE aren’t worth putting money into anymore. The industrial sector is still alive and kicking, and even GE has seen a 17% climb in share price this year. But it’s important to take note of the direction our culture is heading, and that’s toward artificial intelligence, drone technology, advanced computer chips and things of that sort.
It follows that one of the best ways to make some cash in this environment is to focus on those trends.
And that brings me back to Facebook, which could be an interesting play on this theme. The company reported quarterly results after the close on Wednesday, beating on both the top and bottom with revenue of $4.5 billion (reflecting 41% year-over-year growth) and adjusted earnings of 57 cents a share. Expenses were certainly high, increasing 68% year-over-year, but management had previously warned that the company would be investing heavily this year.
In an environment where companies reporting solid results still tend to see their stocks get hammered, Facebook climbed to a new all-time high post-earnings, and many believe it still has a ways to go.
But my question is this: Has Facebook entered a realm where it gets a free pass no matter what its quarterly numbers are? Yes, the report was good, but there are still some question marks concerning FB’s return on investment with WhatsApp and the Oculus Rift. The company has spent a lot of money recently, but is it going to be able to recoup it all?
Look, I like WhatsApp. I’ve been talking to my son on it and I love it. But if they start putting commercials on there, I might decide not to use it anymore.
We’ll see what comes of that in the future, but for now it’s clear that FB stock has some substantial momentum behind it, and everyone likes to ride a wave of momentum.
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