The 4th Industrial Revolution Portfolio: Big Data Plays
The 4th industrial revolution is upon us, and it is time to adjust your portfolio for the next wave of tech that will run our future economy.
The 1st industrial revolution was characterized by mechanization led by water power and the steam engine. The 2nd was mass production powered by electricity driven by oil-based power. The digital revolution or 3rd industrial revolution started 50 years ago, which has shaped the computerized world we live in today. Now, this is coming to an end as the 4th industrial revolution takes form.
This 4th industrial revolution is building on the digital revolution emphasizing intelligence and information. Big data, cloud computing, and the illustrious artificial intelligence are going to drive the world economy as technology and information proliferate.
Big data analytics is becoming crucial for any business to remain competitive in today’s economy. The need for this kind of analytics is going to escalate as the technology behind it becomes increasingly useful. I discussed AI in my previous article: The 4th Industrial Revolution Is Upon Us: Prepare Your Portfolio. In this article, I will discuss some big data stocks that are worth exploring for your portfolio.
AYX has shown remarkable returns to anyone lucky enough to get into these shares before today. Since Alteryx went public 2.5 years ago, it has driven 817% share price appreciation, and just this year the stock has grown an astounding 139% with investors rushing to get into this exciting big data player.
Alteryx provides data analytics and solutions for 5,278 customers in more than 70 countries, serving some of the biggest corporations in the world, including more than 1/4th of the Global 2,000. It has adopted the subscription-based business model that has become the gold standard for tech today. The platform’s ability to integrate with databases like IBM IBM, Microsoft MSFT, SAP SAP and AWS AMZN, as well as other cloud analytic applications, makes this big data analyzer attractive to any firm.
This company is seeing unbelievable topline consistency that hasn’t faltered below 50% since it went public in April of 2017. The firm is toeing the line of profitability due to a significant increase in sales and marketing spending to establish their brand and develop a best-in-class reputation.
Alteryx offers both on-premise and cloud-based services, depending on customer needs. The firm is investing an increasing amount into its cloud technology to broaden its customer scope and ability.
Everything about this stock is enticing excepted for its ballooning valuation. AYX is trading at 19.6x forward P/S, which is more than 3 times the software industry average and the highest that these shares have been valued at since they went public.
AYX has been driven up by consistent quarterly earnings beats and guidance improvements. This year the company is expected to increase its sales by over 80% and turn its bottom-line deficit into profitability.
I believe that there is a good chance that investors ran this stock up a beyond its current intrinsic, but I see this as an excellent long term play, especially as AYX’s valuation falls. I would wait for a dip before jumping into a position on this overrun stock.
This stock has been trading below its potential all year with an acquisition frenzy instilling concern in investors. I see this as a great opportunity with Splunk’s most recent deals creating synergies beyond the purchase price.
Splunk is a platform that helps companies utilize real-time machine data for collection, indexing, and alerts, allowing companies to uncover actionable insight from this data no matter the source or format. The company is also leveraging AI and machining learning for forecasting and anticipative decision making.
The company offers its products through onsite licensing and through its cloud platform in which they continue to build out both organically and through acquisitions. Splunk has a broad product offering that expands the firm’s total accessible market (TAM) as well as its services allure.
Splunk’s most recent proposed deal was for SignalFx, the leader in real-time cloud monitoring and observability for infrastructure, microservices, and applications, according to Forbes who named it in their next billion-dollar startups of 2019 list as one of the 25 members. SignalFx hit that valuation one month after the Forbes article with Splunk’s $1.05 billion offer on August 21st. The deal is expected to close in the second half of next year.
Shareholders have been dumping SPLK shares due to concern surrounding this deal with a decline of 15.8% since August 21st. This has created a great buying opportunity. The SignalFx is a deal that will generate an enormous amount of synergies between the two companies.
“Data fuels the modern business, and the acquisition of SignalFx squarely puts Splunk in position as a leader in monitoring and observability at massive scale,” said Doug Merritt, President, and CEO, Splunk. The combined firm will allow Splunk’s customers “to monitor and observe data in real time, no matter the infrastructure or data volume, helping them cut costs, boost revenue and improve the customer experience”, according to their letter to shareholders.
SPLK is trading at a favorable P/S multiple of 6.4x, right in line with the industry average and on the lowest side of the firm’s 5-year average. This valuation is especially attractive when looking at sales growth, which is estimates to exceed 20% for the next two years, with margins expected to expand.
The time to buy SPLK is now, but be conscientious of the broader economic impact on a growing tech firm when watching it trade in coming months. None the less, I believe it will outperform.
Big data is changing the business landscape in which firms are competing, making it a necessity to not only have real-time data transparency but be able to analyze massive data sets to understand your business and your customers.
In the 4th industrial revolution, the companies that will succeed are the ones that can understand their consumers and effectively control their supply chains. The big data companies that I discussed will allow businesses to do so with efficiency and accuracy leveraging their core capabilities.
It is an excellent time to invest in SPLK. Though I like AYX’s business model and potential in big data analytics, I don’t like its excessive valuation multiple and would wait for a dip before jumping into a position.
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