Technological innovation has led to a world consumers wouldn’t have dreamed possible just 50 years ago. Technology has given consumers cures for devastating illnesses, opportunities to earn tremendous incomes from home, the convenience of ordering food without ever picking up the phone, and the ability to search for any answer they needed in milliseconds.
The simple truth is that traditional times are fading as we enter a digital world.
Of course, when any fundamental shift like this takes place, those who lead the revolution will enjoy the fruits of their labor. As the world continues to turn digital, digital conglomerates are beginning to take charge as the world’s largest companies.
Of course, when there’s big money to be had, Wall Street participants gain interest. It’s not surprising to see that investors are flocking toward digital conglomerates stocks.
What Are Digital Conglomerates Stocks?
Conglomerates, or large companies with many subsidiaries, are nothing new. In fact, large industrial conglomerates played a massive role in the development of the United States economy. Today, as technology reshapes the world, digital conglomerates are taking the lead.
These goliaths are technology companies like Amazon and Alphabet. Like any other company, these companies generally start small. As the companies grow, profits from operations are reinvested in order to achieve higher and higher levels of growth.
Eventually, organic growth is coupled with growth through acquisitions. Moreover, leading their original market, these tech companies start to look into other areas of the business where they believe they have the ability to be dominant.
Over time, the continuation of this process leads to the birth of a digital conglomerate, becoming a technology company that has grown so big that it has multiple business units, with a multitude of different digital products and services.
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5 Best Digital Conglomerate Stocks to Buy
As with any other type of stock, digital conglomerates aren’t created equal. Some will represent far better investment opportunities than others. Nonetheless, if you’re looking for the best stocks to buy in this category, the five stocks below are attractive offerings to start with.
1. Amazon.com (NASDAQ: AMZN)
According to Statista, Amazon.com is the fourth largest company in the world, currently trading with a market capitalization of around $1.73 trillion. There’s a strong chance you’ve heard the name before; the company is an e-commerce giant.
The company essentially paved the way for the online retail industry that we know today. As one of the pioneers in the space, the company has grown to massive proportions, taking the lion’s share of the market.
This growth was the result of strong early investments in real estate and infrastructure, allowing for best-in-class shipping times to match Amazon.com’s already low prices. In fact, according to eMarketer, by 2021, the company had a 40.4% market share in the U.S. e-commerce market, representing a whopping 6% of all shopping in the U.S.
Considering the company’s dominance, there’s no arguing the fact that the online retail giant brings an incredible opportunity to the table in the e-commerce space. However, Amazon is far from a one-trick pony. The company has its fingers in various parts of the technology industry.
Some of the most compelling offerings outside of the e-commerce space the company has created include:
- Artificial Intelligence. Amazon’s artificial intelligence — Alexa — is a massive success. In fact, it is at the center of many smart homes of today and has driven billions of dollars in sales for the company.
- Amazon Web Services (AWS). AWS quickly climbed the ladder to become the leading provider of cloud computing technologies and data centers in the United States, representing yet another source of billions of dollars in revenue for the company.
- Audible. Amazon is the owner of Audible, the service that brings books to life by offering an audio version of seemingly every title in the traditional library and beyond.
- Financial Services. The company also offers online payment services through its subsidiary Amazon Pay. It also provides small-business lines of credit and other financial services.
The subsidiaries mentioned above are just three in a list of 40 that are owned and controlled by Amazon. Other big names include Ring, Zappos.com, Blink, Whole Foods Market, and ComiXology.
The company has experienced incredible growth since the start of the COVID-19 pandemic, a crisis that caused serious pain across various sectors of the stock market. As the leading e-commerce provider, Amazon.com has had a competitive advantage.
With consumers being told to stay home, online shopping became the norm. Many argue that even when COVID-19 is completely behind us, this competitive advantage is likely to stick around. Moreover, the health crisis has led to spikes in demand for cloud computing, home entertainment, and other products the tech giant has its fingers in.
Some analysts suggest that last year’s quarantines and stay-at-home orders have introduced consumers to lines of products they would never have tried if the COVID-19 pandemic had never taken place. As a result, even when the pandemic is behind us, many Wall Street participants expect Amazon will continue to see compelling growth.
All in all, the stock is one for the watchlist.
2. Microsoft (NASDAQ: MSFT)
As is the case with most stocks listed here, Microsoft is a household name. In fact, the name of the company’s co-founder, Bill Gates, has become synonymous with wealth over the years.
Microsoft started as a small company focused on home computers. While many said home computers would never take off, Bill Gates and his partner Paul Allen were on a mission to prove the naysayers wrong, and they surely succeeded.
Microsoft paved the way for home computers, laptops, smartphones, and other computerized technologies of today, and has become one of the biggest technology companies in the world. Today, the company employs approximately 182,000 people around the world, generates more than $143 billion in revenue annually, and has a market cap of more than $2.25 trillion.
The company is best known for the software it produces. In fact, when you buy a computer, it’s likely to come with the Microsoft Windows operating system. According to Statista, the company controls about 78% of the operating system market.
However, like all others on this list, the company is far from a one-trick pony.
One of the company’s largest subsidiaries is centered in the multibillion-dollar cloud computing industry. Microsoft Azure is the second largest player in the cloud market, controlling around 22% of the cloud services market, according to Statista.
Of course, with more consumers using online services than ever before, COVID-19 has lit a spark under Azure’s growth.
Beyond software and cloud computing, the tech giant has a long list of subsidiaries across various subsectors within the digital sector. Some of the most prominent include:
- Social Media and Messaging. The company is a big player in social media and messaging with ownership of major brands including LinkedIn and Skype.
- Gaming. Microsoft is also one of the largest players in the video game console industry. The company owns Xbox, Xbox Studios, and InXile Entertainment.
- Business Tools. Microsoft also offers a long line of business tools. It’s the company behind Office, Avande, and Revolution Analytics.
There are several other companies in various industries under Microsoft’s umbrella. In fact, the company has 122 subsidiaries.
Although the stock did take a bit of a hit at the beginning of the COVID-19 pandemic, it ultimately benefited. With work-from-home taking center stage, demand for Microsoft Office and the company’s other business products has increased. So too has demand for quality operating systems and cloud computing technologies.
Considering that many massive companies have already said that they plan on keeping work-from-home in place for the foreseeable future, demand in these areas is expected to continue, making Microsoft a compelling pick among the digital giants.
3. Apple (NASDAQ: AAPL)
Apple is the mastermind behind the world’s most popular smartphone, the iPhone. The iPhone’s popularity is the key driving force behind the company’s dramatic growth over the past several years.
Today, the company trades with a market cap of more than $2.4 trillion and generates revenue of well over a quarter trillion dollars annually. About 54% of that revenue comes from the iPhone, the company’s flagship product. However, the iPhone isn’t the only product the company has up its sleeve.
Apple’s core products include:
- iPhone. The iPhone is clearly a blockbuster product. Taking more than 50% of the global smartphone market, according to Fox Business, the iPhone is the most popular smartphone in the world.
- iPad. The iPad tablet is another major product for the company. Representing about 10.5% of the company’s overall revenue, the iPad generates billions of dollars in sales per year.
- Macbook. The Macbook is Apple’s laptop, and represents about 15% of the company’s annual revenue.
- Wearables and Accessories. The company’s wearables and accessories division, including its Apple Watch, generates about 12% of the company’s revenues.
Outside of smartphones, tablets, wearables, and laptops, Apple has plenty more to offer. In fact, the company is one of the biggest digital conglomerates in the world. Through the years, the company has taken part in more than 100 mergers and acquisitions.
In fact, if you buy Beats Electronics, NextVR, or iTunes products or services, you’re ultimately buying those products and services from Apple.
The company has its fingers in just about every area of the digital world, both on the hardware and software sides of the coin. The company is deeply involved in virtual reality, health care, autonomous vehicles, and a long list of other industries.
Apple’s stock felt some pain at the start of the COVID-19 pandemic. However, the company quickly recovered as investors realized that the tech giant would ultimately benefit from a push to stay at home as demand for high-quality consumer electronics and home entertainment options climbed.
Moreover, the company’s activity in health care and activities in the fight against the COVID-19 pandemic have resonated well with investors. All in all, the company has more than rebounded from the crisis, with share prices climbing more than 150% since mid-pandemic lows.
Even with the tremendous growth seen over the past year, analysts expect there to be plenty more upside potential. According to TipRanks, analysts expect the stock to grow by more than 15% in the year ahead.
With a stronghold on the smartphone industry and a heavily diversified portfolio across the technology sector, Apple stock is a compelling investment opportunity for those looking to take part in the tremendous long-run growth seen in big tech.
4. Alphabet (NASDA: GOOG | GOOGL)
You may not know the name Alphabet, but if you’re like most Americans, you know the company’s original name very well. That name is Google.
Google isn’t just a name; it’s become a popular verb in American culture. If you don’t know the name of an actor, where the closest gas station is, or how much it costs to buy a piece of land in Africa, you Google it!
Google is the world’s largest search engine. The company literally built a business around providing answers, and it’s an incredibly lucrative one at that. The company generated $104 billion in search revenue alone in 2020.
However, search isn’t the only trick up Google’s sleeve. In fact, the company’s many activities outside of search prompted a name change from Google to Alphabet.
So, what does Alphabet do outside of Google Search? Some of its most commonly known products include:
- Local Listing. Google My Business is a local listing solution that gives small-business owners a way to advertise to their location-specific audience.
- Advertising. The big value of search for Alphabet is the advertising revenue it drives. However, the company’s activities in advertising go far beyond search. The company controls the lion’s share of the digital advertising industry across the web.
- Analytics. Outside of advertising, the company provides detailed visitor analytics and other data-driven services to website owners.
- Business Management Tools. Finally, through its GSuite, Alphabet offers a suite of business management tools.
On the other hand, Alphabet’s business activities go far beyond these areas of the digital world. The company has a strong spot in the health care side of the digital sector. Alphabet was the buyer behind the $2.1 billion deal to buy Fitbit. The company also has its fingers in the smart home market with Google Nest, the internet and media services industry with Google Fiber, and the cloud computing industry with Stackdriver.
Alphabet has a proven track record of leadership within the industries that it operates. Whether it’s search, advertising, or business management, the Google brand tends to be what comes to mind. There’s a level of stability in brand awareness like that.
All in all, with a proven record of leadership, consistent growth, and a heavily diversified portfolio, Alphabet is one of the best stocks to watch on Wall Street today.
5. Alibaba (NYSE: BABA)
Alibaba is essentially the Amazon.com of China, the world’s second largest economy. The company’s claim to fame is e-commerce, representing the largest online retailer in Asia.
However, Alibaba is involved in multiple areas of the tech sector, including not just e-commerce, but Internet technology, telecommunications, retail, and health care. In fact, in August 2020, Alibaba announced that it would be raising $1 billion to expand its pharmaceutical network.
Some experts have even ventured to say that Amazon.com could learn a thing or two from Alibaba’s activities in the health care industry.
At the moment, investors have the opportunity to buy into the company at a heavy discount to recent valuations.
Alibaba planned to spin off its financial technology arm, known as Ant Group, in a deal worth $34.5 billion. However, regulatory agencies stepped in and stopped the IPO of Ant Group, according to NPR. Nonetheless, according to Reuters, the company still intends to spin off Ant Group with an IPO that could take place within the next two years.
Ultimately, new regulations threaten the company’s lending business, which drives about 40% of Ant Group revenues. So, the company is being forced to realign its prospectus with regulatory requirements, which will take some time.
The most recent update on the IPO was provided in July when the company said the relaunch of the IPO should happen before too long, according to Nikkei Asia.
Ultimately, investors are hoping that the Ant Group IPO will happen mid-to-late next year. Should this take place, it would be a big win for all investors in the ticker.
Nonetheless, this is also the most risky play on the list. Alibaba is a Chinese company. While China is the second largest economy in the world, it’s still an emerging economy subject to increased volatility. Not to mention, Chinese stocks have faced recent headwinds as Chinese regulatory authorities have been flexing their muscles and exerting controls over some key industries, including tech.
This, combined with uncertainties surrounding the Ant Group IPO, suggests that significant losses could be ahead.
However, there’s a lot to be said about the fact that Alibaba trades with a market cap of more than $400 billion even after the recent declines in the share price. Even with this mishap, Alibaba is one of the largest tech companies in the world, and remains the e-commerce goliath of China. Despite potential increased volatility and the short-term risks that come along with an investment at this stage, Alibaba represents a strong opportunity for the right investor.
Digital conglomerates stocks are attractive for many reasons. Not only are these companies seeing tremendous growth, they’re driving a technological revolution that’s changing the lives of consumers around the world.
Although these aren’t commonly known as dividend stocks with strong dividend yields, the strong momentum often seen across technology stocks — including some of the biggest names in the space — is hard to ignore.
Nonetheless, as with any class of stock, these stocks are all unique and should be treated as such. You should never buy a stock simply because it’s a large technology company with a massive market cap. It’s always best to research any company you’re considering investing in before making an investment.
Disclosure: The author currently has no positions in any stock mentioned herein nor any intention to hold any positions within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers Team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.