Use This Tech Investing Secret
Do you know what the most important part of your house is?
Hint: Without this one part, your house literally couldn't stand.
Over the last couple days, I've posed this question to a wide range of people and gotten an equally wide range of answers.
People have guessed the roof, the plumbing, and the electrical system.
When I asked my dad, who has raised three children, he quickly replied, “Soundproofed walls.”
Very few people gave me the right answer: the foundation.
That's right. The most important part of your house is a part you never see and rarely think about. But if the foundation of your house is wrong, then there will be structural issues throughout the building. Your home could be ruined in one fell swoop.
The same lesson can be applied to the world of technology investing.
When it comes to investing in tech, some of the most important companies out there are the ones that provide not the bells and whistles but the foundations of booming industries.
It's these companies that have managed to climb through the ranks to become multibillion-dollar brands.
And their role as “foundation builders” makes them a very unique market opportunity.
Let me explain.
Why Investing in Foundation Technologies Can Lead to Profits
Companies that provide “foundation” technologies have a unique edge over hyper-targeted technology companies.
Well, it is the “foundation” technology companies that provide the tools to massive markets.
To better illustrate this, I would like to turn to a time-tested investing metaphor: The story of the Gold Rush pickaxe salesmen.
During the Gold Rush, millions of people flocked to California with the hopes of instant riches. Sadly, very few of those people found wealth in California's rugged hills.
But the pickaxe salesmen did.
They knew that every miner flooding into the state would need tools to chase their dream. So they provided them and raked in the cash.
And the best companies do the same.
These companies provide crucial software and hardware.
They have the ability to cater to companies all over the globe and make investors a pretty penny in the process.
In fact, here are just a few of the multimillion- and billion-dollar markets these companies are providing to:
- The artificial intelligence market, which is expected to be worth $1.2 trillion by 2020
- The virtual reality and augmented reality markets, which are expected to have a combined market worth of $150 billion by 2020
- The blockchain market, which, not including cryptocurrencies, is expected to be $7.5 billion by 2024
- And then there are 5G networks, which will requires $200 billion in deployment costs
All of this considered, it's easy to see how companies providing foundation technology should have a place in your portfolio.
And it isn't just me saying this.
History has proven time and time again that investing in the foundations of the technology market can lead to profits.
Just take one glance at some of the most successful giants in the world, and you'll see that they got there by providing foundational technology to different tech revolutions.
Foundation Companies Have Grown into Giants!
Each revolution, whether it is the personal computer, the internet, 5G, or blockchain, has required a slew of foundational technologies from the hardware, software, networking, and semiconductor spaces. The computer needed parts. Our 5G networks needed cellular networks.
And the companies that have provided those crucial technologies have benefited handsomely.
Let's take a look at a few examples.
Since its founding in 1975, Microsoft has grown from a small tech startup to one of the most powerful companies on the market, with a staggering market cap of $847 billion.
And it’s made investors a lot of money along that growth path.
If you had invested in Microsoft when it launched on the public market in 1988, you could have made over 91,718%.
But how has the company been able to grow so dynamically?
Well, it turns out it followed the foundational technology business model. Microsoft built its tech empire by selling software, and it’s worked to make sure that software is in every computer in America. In 1980, the company partnered with IBM to try to get its software to even more Americans, improving and catering to even wider markets.
And in doing so, Microsoft helped grow an emerging industry: computers.
That brings me to our giant of history: Qualcomm.
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I can almost guarantee that you interact with at least one Qualcomm product a day.
How am I so sure?
Well, Qualcomm has played a pivotal role in most of the major electronics in our households. Its trademark chips are in our tablets, smartphones, and computers. In fact, the company rose to power because it was able to provide these critical technologies.
Qualcomm dominates the current chip market, holding over 70%. Since the early days, it has catered to some of the biggest companies in the tech industry, including Apple.
And this has allowed Qualcomm to net investors a pretty penny. If you had invested in Qualcomm at the time of its IPO, you could have netted gains upward of 9,000%.
And Qualcomm could still grow.
Despite a recent failed acquisition, the company still is the world's largest chip supplier. This positions it well for the coming artificial intelligence and virtual reality boom.
And that brings me to my next point...
Companies that provide foundational technologies will still grow in the future.
Giants Are Being Formed... Don't Miss Them
If you take anything away from this article, let it be this: Sometimes the best investment move isn't investing in the giants. It's investing in the companies that help make them.
That is why, historically, providers of the foundational technologies have been so successful.
We likely wouldn't have the same computers without Microsoft or the same phones without Cisco.
Each of these companies used important technologies to lay a stone on a road to a new future. And for many investors, they helped pave the way to a wealthier retirement.
That said, if you missed out on these companies, there is no reason to mope. The beautiful thing about investing in the technology space is that change is constant.
A whole new fleet of companies has risen to provide the tools needed for new generations of tech. That means new foundational technology companies, and old ones, will cater to the next big tech revolution.
If you're curious to learn more about foundational technology companies, make sure to check out the latest presentation from our technology analyst Jason Stutman.
Jason isolated one of the companies providing a key foundational technology to the multitrillion-dollar artificial intelligence market. You can learn more about that company here.
Best of luck with your investments,
@AlexandraPerryC on Twitter
Alexandra Perry is a contributing analyst for Wealth Daily and Energy and Capital. She has multiple years of experience working with startup companies, primarily focusing on artificial intelligence, cybersecurity, alternative energy, and biotech. Her take on investing is simple: a new age of investor can make monumental returns by investing in emerging industries and foundational startup ventures.
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