3 Disruptors to Invest In Before They’re the Next Big Thing
The search for disruptors is on. These innovative companies are at the forefront of emerging trends that could revolutionize our lives. And investors who identify disruptive technologies early on can benefit from significant returns on investm…
The search for disruptors is on. These innovative companies are at the forefront of emerging trends that could revolutionize our lives. And investors who identify disruptive technologies early on can benefit from significant returns on investment.
The list of innovative companies investors have to choose from is long. Of course, not all disruptors are created equal, and some trade with unrealistic valuations. However, the three companies below have solid fundamentals and growth prospects, and I think they are worthy of consideration by long-term investors.
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First up on the list of innovative companies to buy is one that has transformed the e-commerce sector: Shopify (NYSE:SHOP). Its business model has provided impressive disruption in a top-heavy e-commerce market that has, historically, been dominated by a few large players.
Shopify offers comprehensive software solutions to help small and medium-sized enterprises quickly set up their online stores. In a world that many view as inequitable, that’s a great thing.
Not surprisingly, Shopify performed exceptionally well during the pandemic. Incredible increases in revenue and earnings set the bar high. But as the pandemic wound down, the company found it hard to surpass those figures. This led to a sharp decrease in the company’s stock price in 2022.
That said, 2023 is shaping up to be a much different year. Shopify’s most recent financial results were stronger than expected, with Q4 revenue up 26% year over year to $1.7 billion, despite calls that Shopify’s growth potential is all but over.
Although Shopify’s future appears bright, the primary concern is its valuation. At nearly $44 per share, the company has an enterprise value of $50.6 billion, 7.6 times estimated revenue for 2023. In comparison, Amazon’s (NASDAQ:AMZN) valuation is only 1.8 times its anticipated sales this year, and BigCommerce’s (NASDAQ:BIGC) EV is 2.4 times its estimated 2023 revenue.
Shopify’s current high valuation results from its reputation as an innovative growth stock. Accordingly, if the company is able to return to something closer to its historical growth rate, this is a stock that could see upside from here. While there’s plenty of risk involved with Shopify right now, I think this is an intriguing bet, particularly if the stock drops further amid contagion fears in the coming weeks.
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Microsoft (NASDAQ:MSFT) is certainly one of the innovative companies long-term investors should consider. While often viewed as a safe play in the software space, the tech giant has grown into so much more.
Microsoft has made significant investments in research and development regarding artificial intelligence. Through its cloud computing platform, Azure, the company provides a variety of AI and machine learning tools, such as Cognitive Services, Bot Service and Azure Machine Learning.
Microsoft has been in the news lately because it incorporated ChatGPT into its Bing search engine. By introducing ChatGPT, Microsoft aims to make its search engine more relevant and to challenge Google’s dominance in the search market.
OpenAI, the organization that developed ChatGPT, is a key investment for Microsoft, which has invested billions of dollars into the project. For those bullish on the AI race, Microsoft is a unique way to play the future growth in this segment.
Additionally, Microsoft falls into multiple investment categories, including ESG. The company has made various commitments to environmental sustainability through its Corporate Social Responsibility initiative, including becoming carbon negative by 2030 and eliminating all of its historical emissions since it was founded in 1975 by 2050.
Zoom Video (ZM)
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Zoom Video (NASDAQ:ZM) has suffered significant losses over the past year and a half. At less than $70 a share, the stock is trading below pre-pandemic levels. As such, it is one of the innovative companies that could be compelling for those seeking to benefit from a potential risk-on rally in 2023.
The company exploded in popularity during the pandemic, with media coverage highlighting it as one of the biggest beneficiaries of the work-from-home trend. The stock peaked in October 2020 at $588.84 and has fallen 88% since then due to increased competition and shifting macroeconomic factors.
Despite this sharp decline in value as the world returned to normalcy and investors shunned growth stocks, Zoom’s brand recognition surged due to the pandemic and it was established as the leading video conferencing platform globally. While Zoom may continue to struggle in the short term amid tough year-over-year comparisons, there is potential for growth to accelerate and justify a higher valuation for the company’s stock.
Zoom’s core business model has the potential to thrive in the long run. The company possesses a competitive advantage through its technological moat, offers a superior product and holds significant market share.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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