The Need For FAANG Alternatives
What comes to your mind when you think about the finest stocks of the last 20 years? Perhaps the FAANG stocks like Facebook (Meta), Amazon, Apple, Netflix, and Google.
Why? Because if you had invested $1000 in Apple shares 20 years ago, you’d now have over $338,000!
Now, what comes to your mind, when you think of the best stocks to buy for the next 20 years? It’s not an Apple, is it?
Well, you’re now unlikely to get overwhelmingly rich on shares of Apple. It’s a great company, but the tragic fact is it may no longer be able to sustain outsized returns seen historically. For shares of Apple to replicate that same returns over the next 20 years, the company would have to grow to over 800 trillion dollars. That is nearly nine times the size of the global economy.
Even for shares of Apple to grow your portfolio by 10 folds, the company would have to overtake the size of the US economy, and it’s the same problem with all the FAANG stocks. These heroes of yesterday have become victims of their own size and their own successes.
Things change quickly in the business world and on Wall Street.
Twenty years ago, General Motors, Microsoft, Exxon Mobil, Walmart, and Pzifer were the largest public companies, and now only Microsoft cracks the list.
Microsoft, Apple, IBM, and CVX were members of an elite stock club a decade ago; now, only Apple and Microsoft remain, and others have been replaced by new-age tech companies such as Meta, Amazon, Netflix, and Google, which account for about 15% of the S&P 500.
So, many traders and investors are now motivated to find the stocks today that could become the leaders of tomorrow.
That’s why we’ve compiled a list of 5 potential candidates, as recommended by various reputable sources, that have a lot of room to expand and potentially become incredibly profitable companies in the long run, and might be the next generation FAANGs.
TOP 5 Potential Stocks To Become The Next Generation FAANGs
1. NVIDIA: A Game Changer In The World of AI
NVIDIA is a play on the future of artificial intelligence, with a market capitalization of $598 billion, making it the world’s seventh largest company.After dominating the market for high-end graphic processors for video games, NVIDIA has set its sights on taking a lead role in the emerging market for artificial intelligence.
Nvidia has direct exposure to three key technology markets:
- The global semiconductor market, which is expanding rapidly as more goods and services adopt digital technologies.
- The gaming market, on its own, is a huge industry, and Nvidia is developing cutting-edge gaming solutions to capitalise on the opportunity.
- Artificial Intelligence (AI), Autonomous Vehicles, Cybersecurity, Cryptocurrencies, and the Metaverse are all potential drivers for Nvidia.
Nvidia’s most recent Q4 earnings report revealed strong revenue growth, and management is expecting it to continue for the coming years.
Source: S&P Global
Even though its current valuations are stretched, Barron maintains a very positive outlook on Nvidia, driven by the potential of the emerging markets it serves.
2. AIRBNB: A Sleeping Giant
AIRBNB, the travel disruptor, made an explosive debut in December 2020, and then emerged as an unexpected winner despite the travel industry’s struggles, against headwinds caused by the pandemic.
Nonetheless, total revenue came in at $1.5 billion in Q4, an increase of 78% YoY, with a sizable market cap of $97 billion.
Source: ABNB Shareholder-Letter
The company holds a dominant position in the $3.4 trillion travel industry and has a track record of robust growth. Airbnb appears to have a lot going for it, as it is currently seeing about $45 billion in annualised booking volume and is likely to post its first full-year profit in 2022.
Throughout the pandemic, the company benefited a lot from longer stays, and this trend is likely to continue, as remote working is here to stay.
For Airbnb, the Motley Fool suggests a green signal given by the company’s asset-light and high operating leverage business model, which can enable it to be a very profitable business in the long run.
3. SQUARE: The Massive Banking Opportunity
It’s no secret that the financial services and digital payments industries have been on a rapid growth trajectory, and Square points to its mega-cap potential, with a market cap of more than $75 billion in the $18 trillion banking industry.
Square focuses on financial services, such as merchant payment solutions (hardware and software for small businesses), digital wallets (cash app), and other payment/business solutions that are particularly geared toward online businesses.
Among many, Cash App is the main reason why investors should be excited about the company, because it’s this part of the business that’s going after the massive banking industry.
Source: SQ Shareholder-Letter
Inflows into Cash App’s ecosystem continued to be the primary driver of gross profit. And thus, Square is focusing on adding features, including:
- Peer-to-peer payments
- Spending via debit card
- Direct deposits
- Investing in Stocks and Cryptocurrency
- Tax preparation
- Buy now, pay later (BNPL)
With its gross profits soaring 47% in the most recent quarter, InvestorPlace believes Square has plenty of chapters to write in its splendid growth story in the coming future. Seeking Alpha are also bullish Square and see potential in it replacing the FANG.
4. TELADOC: Health is Wealth
We’ve all probably met with an online healthcare provider in the last year and a half. Not surprisingly, the company has reaped significant benefits from Covid-19, by reporting triple-digit revenue growth in the last nine quarters.
As a result, Teladoc is now the market leader in on-demand healthcare over the internet.
The global telehealth market is expected to grow by 25% over the next six years, and management believes the virtual care opportunity it is pursuing is worth more than $250 billion. That’s just in the United States.
Over the years, the company has also made several acquisitions in order to position its brand in Europe, South America, and China.
SQ Stock: Square Is a Great Long-Term Investment | InvestorPlace
SMART Stocks Are The New FANG | Seeking Alpha
After posting more than 300% returns during the pandemic, the stock has now been knocked to multi-month lows and is now back to pre-covid levels.
Source: YCharts
However, SeekingAlpha sees a strong recovery in TelaDoc as revenue per share has risen to $12.96, up from $7.50 in 2019, making it a great value play.
Teladoc Health: Buy After COVID-19 Bubble Ends (NYSE:TDOC) | Seeking Alpha
5. UPST: Fintech Disruptor In The Making
The lending industry is being transformed by artificial intelligence, and Upstart Holdings, Inc. is already at the forefront of this multibillion-dollar industry. Upstart has made long-term investments in its lending platform, resulting in massive growth potential.
The AI technology enables lenders to assess credit risks and make lending decisions in fractions of a second, and Upstart is the market leader in AI-assisted lending.
As of 4Q21, Upstart’s transaction volume had risen to $4.1B, up 301% YoY, due to the scaled deployment of its AI technology. What distinguishes Upstart from other start-ups is that the AI firm is already profitable with revenues exceeding $305 million in Q4, a 252% YoY growth.
Source: UPST Shareholder-Letter
InvestorPlace believes that the financial industry’s future lies in artificial intelligence-based lending platforms and as UPST’s financial KPIs are improving, the company is set to become the next generation FAANG.
Conclusion
Returns on FAANG stocks have been fantastic in recent and previous years, but it’s not that you can’t get 10%, maybe even 20%, a year on these big tech giants going forward.
However, looking for multi-baggers of tomorrow means looking for comparatively smaller companies with a disruptive business model, large addressable market, improving financials and room to grow, similar to the companies that we have compiled from various reputable sources.
Please note that all the information contained in this content is intended for illustration and educational purposes only. It does not constitute any financial advice/recommendation to buy/sell any investment products or services.
