Ever since the beginning of 2021, it seems like investors haven't been exactly sure what to do with tech stocks. Many of the big winners in 2020 have given up portions of their gains as investors have looked to other areas of the economy for growth.
But dismissing technology stocks altogether right now could be a huge mistake. There are plenty of companies that are tapping into massive markets and building out their leads in niche spaces. We asked three Motley Fool contributors for stocks they think could see explosive growth over the next few years and they came back with Square (SQ 4.56%), NVIDIA (NVDA -5.55%), and The Trade Desk (TTD -0.29%). Here's why.
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Two thriving ecosystems are driving this explosion
Brian Withers (Square): Square has come a long way since it started by helping sellers collect in-person credit card payments with its plug-in device for mobile phones. Today, the company has two thriving ecosystems that drive its growth. The seller segment has become a rich suite of 30 connected applications and services, but its budding Cash App business is no slouch either. The Cash App enables person-to-person payments, banking-like services, and the ability to buy or sell stocks and Bitcoin(CRYPTO: BTC).
Both of these ecosystems are flourishing today. Below is a table of recent results showing its tremendous year-over-year growth. The Cash App business surpassed the seller segment in overall gross profit dollars for the first time in its history. It's not surprising given that this segment has reported triple-digit percentage growth for the last five quarters. The seller segment saw some headwinds during the pandemic as brick-and-mortar sellers saw decreased traffic and had to quickly create omnichannel operations. But as the economy opens back up, these sellers should see increased traffic and, hopefully, increased sales.
Metric | Q1 FY2020 | Q4 FY2020 | Q1 FY2021 | Change (QOQ) | Change (YOY) |
|---|---|---|---|---|---|
Seller gross profit | $356 million | $427 million | $468 million | 10% | 32% |
Cash App gross profit | $183 million | $377 million | $495 million | 31% | 171% |
Overall gross profit | $539 million | $804 million | $964 million | 20% | 79% |
Data source: Square. QOQ = quarter over quarter. YOY = year over year. Note: Revenue from Bitcoin sales tends to skew revenue growth numbers so Square's management team likes to focus on ecosystem gross profit instead.
The company has continually improved its platform for sellers. Recently, it launched Square Messages, a service that makes it easy for sellers to communicate with their customers. Additionally, it's been instrumental in facilitating the Paycheck Protection Program for over $500 million in loans to 57,000 small businesses. Some small businesses may not survive the pandemic, but Square is seeing its mid-market sellers thrive. Those with more than $500,000 in annual sales grew at a 43% year-over-year rate in the most recent quarter, twice as fast as smaller sellers.
Square is set up to be there for its sellers as they start to see the benefits as more consumers get out of the house. For investors, this stock has been explosive, almost doubling in the past year. But its run is far from over. Get on board this winning growth company with a few shares today and your future self will thank you.
Image source: Getty Images.
So many ways to win
Danny Vena (NVIDIA): There's no question NVIDIA has been one of strongest performers of the past decade. The stock has gained more than 5,300% over the past 10 years -- and those returns aren't confined to some distant and dusty past. NVIDIA has gained more than 85% over the past 12 months alone. Given those explosive returns, it might be easy to assume that the best gains are already behind it, but the best may still be yet to come for NVIDIA.
The company is best known for its industry-leading gaming chips. Its graphics processing units (GPUs) are the top choice of hardcore gamers everywhere, with an 81% share of the discrete desktop market. This led to an all-time revenue record in the first quarter of $2.76 billion for the gaming segment, up 106% year over year. That alone is reason enough to buy the stock, but that's just the beginning of NVIDIA's opportunity.
The proliferation and accelerating adoption of cloud computing represents another growth area for the company. NVIDIA is the leading provider of GPUs for artificial intelligence (AI) and data centers, and its processors are the industry standard for each of the largest cloud providers, including Amazon Web Services, Alphabet's Google Cloud, and Microsoft's Azure, just to name a few.
Its industry-leading position has led to dramatic results in its data center segment, which also delivered record growth in the first quarter. Revenue of $2.05 billion surged 79% compared to the prior-year quarter.
Given the ongoing secular trends of gaming, cloud computing, and AI, NVIDIA has a number of ways to win. The company also has its pulse on a number of other trends, any one of which could be a future growth driver.
NVIDIA has a rising opportunity in the area of professional visualization, delivering new capabilities to engineers, graphic artists, and designers. NVIDIA has also developed a state-of-the-art self-driving system and has partnered with some of the leading automakers to embrace the potential of autonomous driving. There are additional growth opportunities in robotics, genomics, and computational biology, all of which harness the power of NVIDIA's GPUs.
Given the company's history of explosive growth and the potential for even further gains, NVIDIA provides investors with a compelling opportunity that reaches far into the future.
Image source: Getty Images.
Advertising is alive and well
Chris Neiger (The Trade Desk): The Trade Desk's platform allows companies to easily buy ads to put on the internet, mobile devices, and even connected TVs. As you might imagine, all of these ad markets are growing very quickly and they're part of a larger digital ad market that will be worth $278 billion by 2024.
One of the company's biggest opportunities over the next few years could be advertisem*nts on connected TVs. Research company eMarketer estimates 60% of U.S. advertisers plan to shift ad dollars away from traditional linear TV to connected TVs and over-the-top streaming services this year.
Some investors have been concerned by the state of the online advertising business as Google is making plans to move away from using online trackers, called cookies, for online ads. But The Trade Desk has been planning for this shift and has built an anonymized identifier, called Unified ID 2.0, that gives consumers more control over how their data is shared while still allowing companies to display ads based on user preferences.
A growing list of companies, including Snowflake, Nielsen, Oracle, and Washington Post are beginning to accept Unified ID 2.0, making The Trade Desks' innovation a likely success.
The Trade Desk has already been a massive success for investors, with its share price exploding 670% over the past three years. And the company's strong position in the digital ad space, along with the growing acceptance of its cookie alternative, should help propel this company further in the coming years.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Bitcoin, Microsoft, Nvidia, Snowflake Inc., Square, and The Trade Desk. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.
