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The economy was hit hard by a global pandemic in 2020, but the tech sector didn't just survive; it's now more essential than ever. And it's making folks a lot of money.
Small businesses have opened digital storefronts with Shopify Inc. (NYSE: SHOP), meetings are conducted on Zoom Video Communications Inc. (NASDAQ: ZM), and remote health has become necessary with companies like Teladoc Health Inc. (NYSE: TDOC) leading the charge.
These companies are up 165%, 640%, and 175% just this year. This is all in the face of a 35% drop in the market earlier this year and an economic recession. But this is just the start for some of the best tech stocks on the market, and 2021 could be a breakout year.
We are in the early innings of a major digital transformation as work and school from home have swept the nation. Even as physical stores continue to open, one common thread here is that tech has taken center stage.
While the economy and daily life will no doubt return to normal, the advancements in technology are here to stay. Zoom has helped companies cut costs for meeting across the country, and digital storefronts have helped small businesses reach larger markets than they ever have before.
But there are even more of these breakthroughs coming in 2021. I'm looking at four trends powering tech higher next year, plus, I'll show you four of the best tech stocks to buy in 2021 to profit from these moves.
Here are the four biggest tech trends to watch in 2021 and the best stocks to take advantage of them…
Big Data will Make Tech Stocks Winners Again
The amount of data we produce every day is astronomical. So much that 90% of the world's data was created in the last two years alone. YouTube videos, family photos, Word documents, game data, new websites, and companies have all added to this number. This means that making sense of this data has become a huge opportunity.
And one company is making this all possible.
It's not Google, either. In fact, it's one of my favorite tech stocks.
Elastic NV (NYSE: ESTC) was founded in 2012 as a search company that builds self-managed and SaaS offerings for search, logging, security, and analytics use cases. The company develops the open source Elastic Stack, which includes Elasticsearch, Kibana, Beats, and Logstash.
Whether you're swiping right on Tinder, finding a ride on Uber, or searching your files on Box, you are using Elastic. This company is for search everywhere Google is not. On top of search, Elastic has also built both observability and security products to expand its market and reach to a $45 billion addressable market. While this number was set in its IPO documents in 2018, it has continued to add more products to its lineup, upping its market billions.
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Just imagine Walmart sells about 156 bananas per second, and that is just one out of thousands of SKUs that is tracked using Elastic. Volvo uses Elastic for its central logging solution and Vitas mitigates risk via real-time threat detection. While we think of search as just typing in text into a box, it is much more than that with products built on top. Since most observability and security functions involve analysis of server logs, these are natural extensions of search.
Elastic has over 12,000 customers and last quarter grew revenue 44% year over year. One of the best parts about this growth is that its net expansion rate is greater than 130%. This means that even if it did not add any new customers, that revenue would still grow.
With the ongoing digital transformation, Elastic should be well positioned as more and more data is created every day.
Cloud Computing Makes One of the Best Tech Stocks Even Better
Everyone knows the name Microsoft Corp. (NASDAQ: MSFT), and chances are you use its products every day, from Windows to Word. But over the last few years it has transformed itself into a cloud-first behemoth. Last quarter, its cloud computing services platform, Azure, grew revenue 47%, and while they don't break out its revenue, its commercial cloud revenue topped $50 billion for the fiscal year. That makes it larger than Amazon and Google.
Microsoft is firing on all cylinders too. It's not just getting in on the cloud megatrend, but it's branching into teleconferencing and gaming. While Microsoft Teams was almost unheard of before 2020, it put a lot of effort into making the product one of the best video conference products out there. Microsoft's ability to integrate and bundle Teams with its suite of other products has also helped it gain a massive number of customers. There are 69 organizations that have more than 100,000 users and almost 2,000 that have more than 10,000 users. With more than 150 million students and teachers around the world relying on Microsoft tools, it is no wonder that Teams has taken off.
On the gaming side of the business, Microsoft is releasing its newest Xbox in November, and it recently acquired ZeniMax Media, the parent company to Bethesda Softworks, the creators of Doom, Fallout, and Elder Scrolls for $7.5 billion. Gaming has been huge this year with more people staying home, and Microsoft saw record engagement and monetization last quarter. That's a trend not likely to slow down with the launch of its new console.
While Microsoft has been around for quite a long time, being founded in 1975, they have really started to hit their stride. As companies around the world go digital, Microsoft is often the first choice, and with best in class products, it should find a place in any everyone's portfolio.
One the Best Tech Stocks in 2021 Is Saving Lives
2020 will go down in the history books, not for the Lakers winning the NBA championship, Rafael Nadal winning his 13th French Open, the wildfires in California, or even the UK leaving the European Union. 2020 will be the year of the pandemic. As of November, we have already passed 40 million global COVID-19 cases and 1 million deaths, making this one of the worst pandemics in modern history.
As the world continues to wait for a COVID-19 vaccine from one of the dozens of companies developing a cure, we have realized one thing: Faster drug development could save millions of lives.
And technology is essential to making it happen.
This is why I'm looking to the future with Schrodinger Inc. (NASDAQ: SDGR). Schrodinger has created one of the most advanced drug discovery platforms on the market. It's used by the world's largest pharmaceutical companies, which are also using it to develop drugs in house. In light of the pandemic, Schrodinger has grown its software revenue by 35% in the first half of 2020 vs. 2019 and has continued to move forward with the 12 programs that are in late-stage discovery.
Looking at usage between 2013 to 2019, we can see just how sticky its products are. Total annual contract value has grown from $32 million to $76 million, and it boasts a 96% customer retention rate with customers spending over $100,000.
With a broad pipeline of collaborative drug programs in discovery, phase 1, and phase 2, this company has a very bright future.
FinTech Stocks Top Our List
Earlier this year, PayPal's CEO said on its earnings call, "I believe we will look back at this time as a tipping point, where digital payments both offline and online become an essential element of our lives."
This statement has never rung truer.
Many parts of our lives have changed over the last year, including the places we go, the people we see, how we travel, and how we pay for it all. I've hardly touched a single dollar bill this year, and I can imagine you have a similar experience with cash. Instead, I've relied exclusively on electronic payment systems through my credit card or phone, using technologies life NFC to pay at the grocery store or local coffee shop.
In fact, much like many of you, I'm doing most of my shopping online these days. This has helped online merchants such as Amazon and Shopify to thrive.
This dramatic shift away from cash has created a huge opportunity for companies like Visa, PayPal, and Square that power our contactless society.
But an even bigger opportunity comes from the ARK Fintech Innovations ETF (NYSEArca: ARKF).
ARK's Fintech Innovations ETF not only holds great growing payment companies like PayPal and Square, but it also holds companies that are benefiting from the shift to digital payments. This ETF believes in six major business platforms: transaction innovations, blockchain technology, risk transformation, frictionless funding platforms, customer-facing platforms, and new intermediaries.
This is exactly what it is doing. Its largest position is payment leader Square Inc. (NYSE: SQ), and it also invests in companies that are at the forefront of e-commerce including Mercadolibre Inc. (NASDAQ: MELI) and Sea Ltd. (NYSE: SE), in South American and Southeast Asia.
What I really like about this fund is that it is actively managed. This means that if ARK finds better investments, it can add them in. Up 75% this year, there is still plenty of room to run given some of its high-growth tech holdings looking to capture large addressable markets.
Three Stocks Even Better Than ARKF
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event – running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped – you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount… they're under-the-radar companies most people haven't even heard of… and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
About the Author
Alex Kagin is the Director of Technology Investing Research at Money Map Press. He has spent the last decade working in equity research, most recently with Energy Capital Research Group (ECRG), where he led technology stock research along with working as part of a team developing a customizable financial data platform for securities analysis.
Prior to joining ECRG, Alex spent 8 years at DeMatteo Research, a boutique primary research firm and broker-dealer servicing the institutional investment community. He managed the Tech, Media, and Telecom vertical where he spent time connecting with hundreds of tech executives and hedge funds to get the pulse of the market.
Alex has a B.S. in Economics from American University and previously held Series 7 and 63 security licenses.