A Better Way to Play the Digital Economy
The bloated acronym for the tech stocks that drive the stock market may be awkward to pronounce.
But Facebook Inc. (Nasdaq: FB), Amazon.com Inc. (Nasdaq: AMZN), Apple Inc. (Nasdaq: AAPL), Netflix Inc. (Nasdaq: NLFX), Alphabet Inc. (Nasdaq: GOOGL) and Microsoft Corp. (Nasdaq: MSFT) (FAANGM) did not let investors down with earnings … that is, except for one of them.
Google parent Alphabet was something of a disappointment.
The company posted its first quarterly revenue decline in history as sales from search ads fell by 10%.
But the setback would’ve been much worse, if not for one saving grace … Alphabet’s cloud revenue grew by 43% for the quarter.
That was enough to soften the blow from the ad sales bust.
Those results were echoed at the two other FAANGMs that are titans of cloud computing services. Amazon and Microsoft saw their cloud revenues jump 29% and 47% respectively.
And there’s more to come. Amazon revealed that its cloud backlog surged by 65% compared to the same period last year, while Google’s $14.8 billion backlog is comprised almost entirely of cloud contracts.
Cloud computing is just one example of how the pandemic is accelerating the transformation of the economy. E-commerce, social media and content streaming have also seen surging demand.
In fact, revenues from the digital economy are projected to swell to $622 billion in just four years … a 39% gain compared to last year.
But the beneficiaries of this trend are hardly limited to members of the exclusive FAANGM club.
In fact, right now there’s a better way to play the growing digital economy.
The New Real Assets
Do you ever think about how your digital goods are delivered?
The reality is the big names you recognize are just the tip of the digital economy iceberg.
Data centers, cell towers and millions of miles of fiber cable all play a critical role in connectivity.
Even before the pandemic accelerated growth of the digital economy, demand for this infrastructure was already set to skyrocket. That’s thanks to catalysts such as the deployment of 5G networks, the Internet of Things and Big Data analytics.
The internet traffic generated by these trends will lead to exponential growth in the “datasphere” as shown below … creating massive tail winds for high-tech infrastructure:
Operators of data centers and communication networks are the pick-and-shovel plays that deliver the essential digital services we rely on more and more each day.
And you can profit from companies providing this critical infrastructure with the exchange-traded fund (ETF) Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (NYSE: SRVR).
After all, they constitute the new era of real assets — physical assets that facilitate our daily activities — in the modern economy … the foundation of services that we have come to depend on, just like electrical grids and water facilities.
Research Analyst, The Bauman Letter