Technological innovation has led to a world consumers wouldn’t have dreamed possible just 50 years ago. If you had told people 50 years ago that it would be possible to talk to each other in digital conferences, search for any answer they needed in milliseconds, invest with the click of a button, or watch a virtual reality movie, they would have said you were crazy.
Fast forward 50 years later, and all that and more has come true. Technology has given consumers cures for devastating illnesses, opportunities to earn tremendous incomes from home, and the ability to order food without ever picking up the phone.
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. So, it’s not surprising to see that investors are beginning to flock toward digital conglomerates stocks.
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What Are Digital Conglomerate Stocks?
Conglomerates are nothing new. In fact, 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.
Digital conglomerates are technology companies like Amazon and Alphabet. Like any other conglomerate, digital conglomerates 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 technology 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, or a technology company that has grown so big that it has multiple business units, with a multitude of different digital products and services.
Best Digital Conglomerate Stocks to Buy Right Now
As with any other type of stock, digital conglomerates are not created equal. Some will represent far better investment opportunities than others. Nonetheless, if you’re looking for the best digital conglomerate stocks to buy in 2020, 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 $1.67 trillion. There’s a strong chance you’ve heard the name before; Amazon.com is an e-commerce giant. Moreover, the tech stock ranks as one of the top five stocks traded on the Robinhood platform.
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 BigCommerce, by 2018, the company had a 49% market share in the U.S. e-commerce market, representing a whopping 5% of all shopping in the United States.
Considering the company’s dominance, there’s no arguing the fact that Amazon.com brings an incredible opportunity to the table in the e-commerce space. However, the company is far from a one-trick pony. As a digital conglomerate, Amazon.om has its fingers in various parts of the technology industry.
Some of the most compelling offerings outside of the e-commerce space that Amazon.com 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. Amazon Web Services, or 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. Amazon.com also offers online payment services through its subsidiary Amazon Pay. The company 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.com. Other big names include Ring, Zappos.com, Blink, Amazon Studios, and Amazon Game Studios.
Throughout the first three quarters of 2020, Amazon.com has seen incredible growth, even as the COVID-19 pandemic 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 has seen incredible growth. As the coronavirus pandemic resurgence continues, this competitive advantage is likely to stick around. Moreover, the pandemic has led to spikes in demand for cloud computing, home entertainment, and other products that Amazon.com has its fingers in.
Some analysts suggest that this year’s quarantines and stay-at-home orders have introduced consumers to lines of products that 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 that Amazon.com 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 163,000 people around the world, generates more than $140 billion in revenue annually, and has a market cap of more than $1.6 trillion.
Microsoft is best known for the software it produces. In fact, when you buy a computer, it’s likely to come with a Microsoft operating system. According to Statista, the company controls more than 77% of the operating system market.
However, like Amazon.com, Microsoft is far from a one-trick pony.
As with Amazon.com, 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 18% of the cloud services market, according to Channele2e.
Of course, with more consumers using online services than ever before, the COVID-19 pandemic has lit a spark under Microsoft Azure’s growth.
Beyond software and cloud computing, Microsoft has a long list of subsidiaries across various subsectors within the digital sector. Some of the most popular include:
- Social Media and Messaging. Microsoft is the company behind big names in social media and messaging, including LinkedIn and Skype.
- Gaming. Microsoft is 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 is the company behind Microsoft Office, Avande, and Revolution Analytics.
There are several other companies in various industries under Microsoft’s umbrella. In fact, the company has 51 subsidiaries.
Although Microsoft stock did take a bit of a hit at the beginning of the COVID-19 pandemic, like Amazon.com, it ultimately benefited. With work-from-home taking center stage, demand for Microsoft Office and other Microsoft 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 digital conglomerates stocks.
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, Apple trades with a market cap of more than $2 trillion and generates revenue of well over a quarter billion dollars annually. Over 40% 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 Investopedia, Apple’s iPhone is the most popular smartphone in the world.
- iPad. The iPad tablet is another major product for Apple. 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.
As was the case with Microsoft, Apple felt some pain at the start of the COVID-19 pandemic. However, the company quickly recovered as investors realized that the digital conglomerate 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 had a great 2020 trading year thus far, with the stock price gaining more than 50% year-to-date.
Even with the tremendous growth seen this year, analysts expect there to be plenty more upside potential. According to TipRanks, analysts expect the stock to grow by more than 10% 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 digital conglomerates.
Pro tip: If you’re going to add digital conglomerate stocks to your portfolio, make sure you choose the best possible companies. Stock screeners can help you narrow down the choices to companies that meet your requirements. Learn more about our favorite stock screeners.
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 $162 billion in revenue in 2019.
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 Alphabet’s 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, Alphabet 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 world. 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 its search, advertising, or business management, Alphabet’s 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, like Amazon.com, Alibaba is far from a one-trick pony. The company is involved in various areas of the tech sector, including not just e-commerce, but internet technology, telecommunications, retail, and health care as well. In fact, in August of 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 digital conglomerate 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.
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 at least six months.
As a result, Alibaba’s stock price fell dramatically. In fact, the price of the stock fell below its 50-day moving average. In general, this is an indication that declines are on the way. However, in this particular case, there’s a strong argument that the crossover represents nothing more than a discount on potential future gains.
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, and ongoing trade tensions between the U.S. and China will likely lead to increased volatility. 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 $750 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 are driving a technological revolution that’s changing the lives of consumers around the world.
Although these are not commonly known as dividend stocks with strong dividend yields, the strong momentum often seen across technology stocks — including digital conglomerates — is hard to ignore.
Nonetheless, as with any class of stock, digital conglomerates stock 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.
If you’re looking for an opportunity to ride a momentous wave up in the market, digital conglomerates are often a great place to start.