As the economy advances technologically, there are new themes that begin to emerge. Some of these themes include big data, artificial intelligence and data warehousing. Below are two ASX companies that have massive growth potential on the back of these themes.
Appen Limited (ASX: APX)
Appen is a global leader in the development of high-quality, human-annotated training data for machine learning and artificial intelligence.
The "Artificial intelligence" boom that is attempting to make workplaces simpler is really beginning to take off, with many ASX200 companies trying to harness these solutions.
The Appen share price has increased significantly since the start of January 2019, closing this week at $18.81. This represents a 53% increase and is likely on the back investors expecting impressive results.
Appen is currently trading at a P/E of 50, underpinned by earnings per share of 19.9c. It still has a relatively small market capitalisation of $1.9 billion. but is expected to grow significantly over the next few years.
NEXTDC Limited (ASX: NXT)
NEXTDC is a technology company enabling business transformation through innovative data centre outsourcing solutions, connectivity services and infrastructure management software.
The NEXTDC share price has benefitted from the increasing need for data warehousing. As data continues to grow, the need to store that data also increases and therefore the company receives economic tailwinds to its earnings.
NEXTDC is Australia's largest hyperscale data centre solutions provider and currently has 8 data centres across the country, with 3 more in development. The company operates on a "Build it and they will come" type model, where there are large costs associated in building the centres before it receives a return on investment through contracts with customers.
The issue NEXTDC faces is maintaining utilisation of the data centres, as they're an expensive fixed cost and need to be generating revenue. Whilst the tailwinds are currently there for more data flowing in if the market gets saturated with centres than they may struggle to charge any sort of premium for service.
NEXTDC currently has a P/E of 271 and is generating earnings per share of 2.2c. It has a market capitalisation of ~$2.4 billion.
Foolish Takeaway
Both of these companies are certainly backed by economic trends, but it seems that the high P/E ratios leave both vulnerable to share price shocks. I think they're fantastic long-term options but would recommend you wait for dips in price to pick them up.
