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Exploring Promising Investment Opportunities Beyond AI
Amidst the widespread focus on artificial intelligence (AI) as an investment sector in 2024, other industries like e-commerce and cloud computing continue to present substantial opportunities for growth. Investors looking for diversification may find notable prospects in companies like Shopify (NYSE: SHOP) and Veeva Systems (NYSE: VEEV), both of which hold tremendous potential for future returns.
The Growth of E-commerce
The e-commerce landscape has evolved significantly over the last ten years, but there is still ample room for expansion. As of the latest figures, online shopping accounted for only 16.2% of total retail sales in the U.S. This indicates that as consumer behavior increasingly shifts towards digital channels, companies specializing in this transformation are well-positioned for growth. Shopify stands out as a key player, offering a suite of services that allow merchants to easily establish and manage online stores. However, its offerings extend well beyond this basic function.
Shopify provides various services, including payment processing, inventory management, and sales tools designed for platforms like Facebook and Instagram. Additionally, its app store features thousands of applications tailored to meet the unique needs of merchants. Over the past decade, Shopify has seen impressive revenue growth, underpinned by its ability to innovate and adapt to market demands.
SHOP Revenue (Quarterly) data by YCharts.
Currently, Shopify’s clients account for approximately 10% of the e-commerce market by gross merchandise volume. While the company has yet to achieve consistent profitability, measures such as cost reductions—most notably through the sale of its low-margin logistics division—have improved its financial metrics. Shopify’s third-quarter performance reflected a 26% year-on-year revenue increase, reaching $2.2 billion, with free cash flow rising by an impressive 52.5% to $421 million, effectively enhancing its free cash flow margin to 19%.
Shopify benefits from significant competitive advantages, including switching costs tied to its platform and a strong network effect derived from its app offerings. Given these strengths and its established financial history, Shopify is poised for continued growth over the next decade.
Cloud Computing’s Niche: Veeva Systems
Turning to cloud computing, this sector offers benefits like operational efficiency, cost reductions, and heightened data security. Although it is a highly competitive arena dominated by major players, Veeva Systems has carved out a niche by providing tailored cloud solutions specifically for life sciences companies, a segment that has distinctive requirements.
Life sciences firms face stringent regulatory standards and often invest significantly upfront without guaranteed returns. For these organizations, opting for a specialized cloud provider like Veeva rather than a generalist provider is akin to hiring a specialized tradesperson for a specific task. Veeva’s expertise in this space has attracted a host of major clients in life sciences, facilitating its ascent as a market leader.
VEEV Revenue (Quarterly) data by YCharts.
Veeva Systems is bolstered by high switching costs that make it challenging for clients to transition to other service providers without significant disruption—particularly critical in a regulated industry where compliance is paramount. The company estimates its total addressable market at around $20 billion, a figure that has typically grown in step with the life sciences sector’s evolution.
Even with a conservative estimate of a $20 billion market size, Veeva’s trailing twelve-month revenue of $2.7 billion indicates ample opportunity for growth. If the company can capture just 30% of its total addressable market over the next five years, it stands to benefit significantly in terms of revenue and stock performance.
Investment Considerations
Before making any investment decisions, potential investors should conduct thorough research on Shopify and Veeva Systems. While they present promising growth potential, it is essential to consider expert analyses and other available market insights.
In a recent evaluation by the Motley Fool Stock Advisor, Shopify was not included among their top recommended investments, which they believe could yield significant returns in the coming years, highlighting the competitive landscape for quality investments. This points to the necessity of ongoing diligence and market awareness for those contemplating opportunities in these growth sectors.
2 Growth Stocks to Buy in 2025 and Hold for a Decade was originally published by The Motley Fool.
Source
finance.yahoo.com