Times of extreme uncertainty lay the foundation for the next race higher, however, and innovative companies are still striving to push the limits of what is possible today. Technological innovators are not always big investments, so those who plan to buy stocks for the long term must diversify accordingly.
Three actions to add to the list of possible purchases for the coming decade are Nikola (NASDAQ: NKLA), NVIDIA (NASDAQ: NVDA), and Square (NYSE: SQ).
1. Nikola: a second evangelist of vehicle electrification
I want to start with the most controversial action here, Nikola, who just finished his public debut through a merger with the special purpose acquisition company VectoIQ. The company is considered a potential competitor You’re here (NASDAQ: TSLA) in the burgeoning electric vehicle (EV) industry and has an equally vocal CEO and founder at Trevor Milton. Oh yeah, there’s also the fact that draws attention that the stock has doubled in one day June 8 (for what it’s worth, I defend myself by saying that I started writing this article before it happened).
What’s this whole story? Although this company has not yet reported officially on its sales results, the company has more than 14,000 pre-orders for its large battery and electric fuel cell electric trucks (with some notable names among the pre-orders such as Parent budweiser A-B InBev). Orders represent more than $ 10 billion in sales, although this is the case if all are fulfilled. Nikola will sign firm agreements (from the end of 2020) on seven-year sale and lease agreements, so that revenues will be recognized in advance but collected over the term. The first targeted routes will be on the I-10 corridor between Los Angeles and Phoenix (the latter being where trucks will be assembled at the Nikola plant). It should also be noted (and what drove the stock up in one day) that the pre-orders for his Badger pickup truck will open on June 29.
Milton and company aim to end dependence on diesel – over the next decade, if not only to Nikola – and will use the $ 700 million in cash it raised from its merger to complete its assembly plant outside of Phoenix, start building its network hydrogen supply and continue to sign partnerships with third-party manufacturers (which will include parts, as well as the Badger pickup itself, although the partner of automaker has yet to be announced). On this last point, Nikola is unique. Where Tesla has vertically integrated operations like no other automaker, Nikola aims to partner with as many companies as possible – while controlling the company’s highly profitable technology and licensing.
There are many unknowns here, but the global transportation and logistics industry spends hundreds of billions, if not billions, of dollars each year. Although Nikola and Tesla rub shoulders from time to time, there is more than enough mature market share for disruption to occur. As of this writing, Nikola’s $ 29 billion market capitalization is comparable to Ford‘S. So, I do not advise an investor to get started now after the massive rush of the past few weeks to pick up the stock. However, I also don’t think the company is a pipe dream. There is a lot of very long term potential (around 10 years, if Tesla is a guide) here. At the very least, keep Nikola on your radar, or buy a small position (1% or less of your wallet) and forget about it.
2. NVIDIA: the hardware underlying AI
Moving on to the much less controversial, NVIDIA is already a massive company doing big business. Its graphics processing units (GPUs), and now its high-speed networking equipment via its recent takeover of Mellanox, are some of the key ingredients that fuel artificial intelligence and machine learning. In fact, its data center segment is expected to abandon its main video game business, and the same technology powering AI in the cloud has also been miniaturized to power robotics, standalone machines, and other devices operating outside of the data centers in the field.
In fact, while the video game industry is still a very large part of the whole at NVIDIA, that company has turned into AI and future computing power. The GPU is quickly becoming an accelerator for special-purpose computing needs and becoming an ubiquitous part of everyday life – albeit behind the scenes and unknown to most. At his 2020 remote GPU conference, CEO Jensen Huang described all kinds of innovative new uses for his company’s products, from AI-based call center services using conversational language to results predictive research organized on the scale of its autonomous vehicle technology to cover everything with wheels.
There’s no denying that NVIDIA is an innovative chip designer, but it also comes with its own controversy. After rising 150% in the past year following a cyclical drop in sales in 2018 and early 2019, the stock is trading for 19 times its one-year turnover and 51 times its free cash flow (turnover minus operating expenses and capital expenses). This is a high price, especially for a company whose market capitalization already exceeds $ 220 billion.
But there is a good reason for the high premium. NVIDIA revenue is expected to increase by 39% in the next quarter, which is not necessarily out of the question for the rest of the year, as Mellanox is now part of the picture (and that it fell back last year when it was not). Over the next decade, however, I think NVIDIA will be bigger than it is today. So whether it’s the perfect time to buy or not, I think this innovative semiconductor leader is worth a look.
3. Square: a new type of banking relationship
Over the past 10 years, mobility and e-commerce have been very profitable investment themes. Now that mobile devices and online shopping are part of everyday life, I think that ubiquitous mobility-based services delivered via the web on consumer terms will be a key place to find out about the winning actions.
On this front, Square has already been a great success. After pausing since 2018, stocks have more than doubled since the March 2020 stock market crash and once again reach historic highs. Square’s digital payments and online sales ecosystem for businesses is resisting the era of on-site refuge, and a permanent increase in business could result as consumers and organizations adapt to ‘digital age. Its small business credit services were also a lifeline during the COVID-19 crisis. And Square’s Cash app is also innovating with new services for its users. Formerly a simple tool allowing individuals to send money, the service is transformed into a fully-fledged mobile banking application.
The last Cash App service added in the first quarter of 2020 was cross-border payments, giving users the ability to instantly transfer money between the United States and the United Kingdom. It joins other add-ons like the debit Cash App that connects to a customer’s digital device. portfolio balance, direct deposit of paychecks and tax returns, and investment (including the ability to purchase partial stocks for small retail investors). Between Square for businesses and the Cash application for consumers, Square is innovating a new type of banking relationship.
Of the three listed stocks, Square is the cheapest, with a valuation of 8.5 times one-year turnover. On the profitability side, the equation is traded for 90.4 times the free cash flow (even if it still rejects most of its profits in the business to develop new services and promote new Cash App capabilities ). But the high price goes hand in hand with the territory of the innovative company. Square increased sales by 44% in the first quarter of 2020, and although no specific guidance was provided for the second quarter and beyond (subscription service fees are temporarily suspended to assist customers), the gross payment volume for the month of April increased by 39%. The balance for 2020 will be very eventful, but it’s clear that this mobile banking and e-commerce business is making innovative waves and taking on lots of new business.